UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

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FORM 10-K

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☒    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2021

or

☐    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ____ to ____

Commission File Number: 001-31486

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WEBSTER FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 _______________________________________________________________________________

Delaware	06-1187536
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
200 Elm Street, Stamford, Connecticut 06902
(Address and zip code of principal executive offices)
Registrant’s telephone number, including area code: (203) 578-2202

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbols	Name of each exchange on which registered
Common Stock, par value $0.01 per share	WBS	New York Stock Exchange
Depositary Shares, each representing 1/1000th interest in a share	WBS PrF	New York Stock Exchange
of 5.25% Series F Non-Cumulative Perpetual Preferred Stock
Depositary Shares, each representing 1/40th interest in a share	WBS PrG	New York Stock Exchange
of 6.50% Series G Non-Cumulative Perpetual Preferred Stock
Securities registered pursuant to Section 12(g) of the Act: None

____________________________________________________________________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒  Yes ☐  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☐  Yes ☒  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒  Yes ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒  Yes ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No

The aggregate market value of voting common stock held by non-affiliates, computed by reference using the closing price on June 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, was $4.8 billion.

At February 18, 2022, the number of shares of common stock, par value $0.01 per share, outstanding was 179,590,244.

Documents Incorporated by Reference

Part III: Definitive Proxy Statement (the “Proxy Statement”) for the Annual Meeting of Shareholders to be held on April 28, 2022.

INDEX

		Page No.
Key to Acronyms and Terms		ii
Forward-Looking Statements		iv
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	16
Item 1B.	Unresolved Staff Comments	25
Item 2.	Properties	26
Item 3.	Legal Proceedings	26
Item 4.	Mine Safety Disclosures	26
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27
Item 6.	[Reserved]	28
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	56
Item 8.	Financial Statements and Supplementary Data	57
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	119
Item 9A.	Controls and Procedures	119
Item 9B.	Other Information	120
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	121
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	121
Item 11.	Executive Compensation	121
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	121
Item 13.	Certain Relationships and Related Transactions, and Director Independence	122
Item 14.	Principal Accountant Fees and Services	122
PART IV
Item 15.	Exhibits and Financial Statement Schedules	122
EXHIBIT INDEX		123
Item 16.	Form 10-K Summary	125
SIGNATURES		126

i

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

KEY TO ACRONYMS AND TERMS

ACL	Allowance for credit losses
Agency CMBS	Agency commercial mortgage-backed securities
Agency CMO	Agency collateralized mortgage obligations
Agency MBS	Agency mortgage-backed securities
ALCO	Asset Liability Committee
ALLL	Allowance for loan and lease losses
AOCI (AOCL)	Accumulated other comprehensive income (loss), net of tax
ARRC	Alternative Reference Rates Committee
ASC	Accounting Standards Codification
ASU or the Update	Accounting Standards Update
Basel III Capital Rules	Capital rules under a global regulatory framework developed by the Basel Committee on Banking Supervision
Bend	Bend Financial, Inc.
BHC Act	Bank Holding Company Act of 1956, as amended
Capital Rules	Final rules establishing a new comprehensive capital framework for U.S. banking organizations
CARES Act	The Coronavirus Aid, Relief, and Economic Security Act
CECL	Current expected credit loss model, defined in ASC 326 “Financial Instruments – Credit Losses”
CET1	Common Equity Tier 1 Capital, defined by Basel III capital rules
CFPB	Consumer Financial Protection Bureau
CLO	Collateralized loan obligation securities
CMBS	Non-agency commercial mortgage-backed securities
CME	Chicago Mercantile Exchange
COVID-19	Coronavirus
CRA	Community Reinvestment Act of 1977
DEIB	Diversity, equity, inclusion and belonging
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
DTA / DTL	Deferred tax asset / deferred tax liability
EAD	Exposure at default
EGRRCPA	Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018
ERM	Enterprise risk management
ERMC	Enterprise Risk Management Committee
FASB	Financial Accounting Standards Board
FDIA	Federal Deposit Insurance Act
FDIC	Federal Deposit Insurance Corporation
FHLB	Federal Home Loan Bank
FICO	Fair Isaac Corporation
FRA	Federal Reserve Act
FRB	Federal Reserve Bank
FTP	Funds Transfer Pricing, a matched maturity funding concept
GAAP	U.S. Generally Accepted Accounting Principles
Holding Company	Webster Financial Corporation
HSA	Health savings account
HSA Bank	HSA Bank, a division of Webster Bank, National Association
LGD	Loss given default
LIBOR	London Interbank Offered Rate
NAV	Net asset value
NYSE	New York Stock Exchange
OCC	Office of the Comptroller of the Currency
OCI (OCL)	Other comprehensive income (loss)
OFAC	Office of Foreign Assets Control of the U.S. Department of the Treasury
OPEB	Other post-employment medical and life insurance benefits
OREO	Other real estate owned
PD	Probability of default
PPNR	Pre-tax, pre-provision net revenue
PPP	Small Business Administration Paycheck Protection Program

ii

QM	Qualified mortgage
ROU	Right-of-use
SALT	State and local tax
Sarbanes-Oxley	Sarbanes-Oxley Act of 2002
SEC	United States Securities and Exchange Commission
SERP	Supplemental executive retirement plan
SOFR	Secured overnight financing rate
Sterling	Sterling Bancorp, collectively with its consolidated subsidiaries
TDR	Troubled debt restructuring, defined in ASC 310-40 “Receivables-Troubled Debt Restructurings by Creditors”
USA PATRIOT Act	Uniting and Strengthening America by Providing Appropriate Tools Requirement to Intercept and Obstruct Terrorism Act of 2001
USD	U.S. Dollar
UTB	Unrecognized tax benefit
VIE / VOE	Variable interest entity / voting interest entity, defined in ASC 810-10 “Consolidation-Overall”
Webster Bank or the Bank	Webster Bank, National Association, a wholly-owned subsidiary of Webster Financial Corporation
Webster or the Company	Webster Financial Corporation, collectively with its consolidated subsidiaries

iii

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” “continue,” “remain,” “will,” “should,” “may,” “plans,” “estimates,” and similar references to future periods. However, these words are not the exclusive means of identifying such statements. Examples of forward-looking statements include, but are not limited to:

•projections of revenues, expenses, income or loss, earnings or loss per share, allowance for credit losses (ACL), expense savings, and other financial items;

•statements of plans, objectives and expectations of Webster Financial Corporation (Webster) or its management or Board of Directors;

•statements of future economic performance; and

•statements of assumptions underlying such statements.

Forward-looking statements are based on Webster’s current expectations and assumptions regarding its business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Webster’s actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. Factors that could cause our actual results to differ from those discussed in any forward-looking statements include, but are not limited to:

•our ability to successfully integrate the operations of Webster and Sterling Bancorp (Sterling) and realize the anticipated benefits of the merger;

•our ability to successfully execute our business plan and strategic initiatives, and manage any risks or uncertainties;

•our ability to successfully achieve the anticipated cost reductions and operating efficiencies from planned strategic initiatives, including process automation, organization simplification, and spending reductions, and avoid any higher than anticipated costs or delays in the ongoing implementation;

•local, regional, national, and international economic conditions, and the impact they may have on us and our customers;

•volatility and disruption in national and international financial markets;

•the potential adverse effects of the ongoing novel coronavirus (COVID-19) pandemic, or other unusual and infrequently occurring events, and any governmental or societal responses thereto;

•changes in laws and regulations, including those concerning banking, taxes, dividends, securities, insurance, and healthcare, with which we and our subsidiaries must comply;

•adverse conditions in the securities markets that lead to impairment in the value of our investment securities and goodwill;

•inflation, changes in interest rates, and monetary fluctuations;

•the replacement of and transition from the London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR) as the primary interest rate benchmark;

•the timely development and acceptance of new products and services, and the perceived value of these products and services by customers;

•changes in deposit flows, consumer spending, borrowings, and savings habits;

•our ability to implement new technologies and maintain secure and reliable technology systems;

•the effects of any cyber threats, attacks or events, or fraudulent activity;

•performance by our counterparties and vendors;

•our ability to increase market share and control expenses;

•changes in the competitive environment among banks, financial holding companies, and other financial services providers;

•changes in the level of non-performing assets and charge-offs;

•changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;

•the effect of changes in accounting policies and practices applicable to us, including the impact of recently adopted accounting guidance;

•legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; and

•our ability to appropriately address any environmental, social, governance, and sustainability concerns that may arise from our business activities.

Any forward-looking statement in this Annual Report on Form 10-K speaks only as of the date on which it is made. Factors or events that could cause the Company’s actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by law.

iv

PART I

ITEM 1. BUSINESS

General

Webster Financial Corporation (the Holding Company) is a bank holding company and financial holding company under the Bank Holding Company Act of 1956, as amended (BHC Act), incorporated under the laws of Delaware in 1986, and headquartered in Stamford, Connecticut. Webster Bank, National Association (Webster Bank), and its HSA Bank division (HSA Bank), deliver a wide range of banking, investment, and financial services to individuals, families, and businesses. Webster Bank serves consumer and business customers with mortgage lending, financial planning, trust, and investment services through a distribution network consisting of banking centers, ATMs, a customer care center, and a full range of web and mobile-based banking services throughout the northeastern U.S. from New York to Massachusetts. It also offers equipment financing, commercial real estate lending, asset-based lending, and treasury and payment solutions, primarily in the eastern U.S. HSA Bank is a leading provider of health savings accounts (HSAs), and also delivers health reimbursement arrangements, and flexible spending and commuter benefit account administration services to employers and individuals in all 50 states.

Merger with Sterling Bancorp

Effective January 31, 2022, Webster completed its previously announced merger with Sterling pursuant to an Agreement and Plan of Merger dated as of April 18, 2021. Pursuant to the merger agreement, Sterling merged with and into Webster, with Webster continuing as the surviving corporation. Following the merger, on February 1, 2022, Sterling National Bank, a wholly-owned subsidiary of Sterling, merged with and into Webster Bank, with Webster Bank continuing as the surviving bank.

Additional information regarding Webster's merger with Sterling can be found in Part II under the section captioned "Recent Developments" contained in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and within Note 3: Business Developments in the Notes to Consolidated Financial Statements contained in Item 8. Financial Statements and Supplementary Data.

Subsidiaries and Reportable Segments

At December 31, 2021, Webster Financial Corporation's consolidated subsidiaries included Webster Bank (the Bank), Webster Wealth Advisors, Inc., and Webster Licensing, LLC. Webster Bank's significant subsidiaries included: Webster Business Credit Corporation, Webster Capital Finance Inc., Webster Servicing LLC, Webster Public Finance Corporation, and Webster Mortgage Investment Corporation, a passive investment subsidiary whose primary function is to provide servicing on qualified passive investments, such as residential and commercial mortgage loans acquired from the Bank. Webster Bank's operations are organized into reportable segments, which represent its primary businesses.

Beginning in the first quarter of 2022, Webster's reportable segment structure will also reflect the operations of businesses acquired in connection with the Company's merger with Sterling. The segment reporting information discussed below and throughout this Form 10-K reflects the organization that remained in effect at December 31, 2021.

Commercial Banking serves corporate customers with more than $2 million of revenue through its Business Banking, Middle Market, Asset-Based Lending, Equipment Finance, Commercial Real Estate, Sponsor and Specialty Finance, and Treasury and Payment Solutions business units.

•Business Banking offers credit, deposit, and cash flow management products to businesses and professional service firms.

•Middle Market offers a broad range of financial services to a diversified group of companies delivering competitive products and solutions that meet their specific middle market needs.

•Webster Business Credit Corporation, Webster's asset-based lending business, is a top U.S. asset-based lender, and offers asset-based loans and revolving credit facilities by financing core working capital with advance rates against inventory, accounts receivable, equipment or other property owned by the borrower.

•Webster Capital Finance Inc., Webster's equipment finance business, offers small to mid-ticket equipment leasing solutions for critical equipment, new or used, across the manufacturing, construction and transportation, and environmental sectors.

•Commercial Real Estate offers financing alternatives, primarily in the Northeast and mid-Atlantic, for the purpose of acquiring, developing, constructing, improving, or refinancing commercial real estate, in which loans are typically secured by institutional-quality real estate, including apartments, anchored retail, industrial, office, and student and affordable housing properties, and where the income generated from the secured property is the primary repayment source.

•Sponsor and Specialty Finance offers senior debt capital to companies across the U.S. that are backed by private equity sponsors and/or are in one of our specialty industries: technology, media and telecommunications, healthcare, environmental services, and restaurants and franchises.

•Treasury and Payment Solutions offers derivative, treasury, accounts payable, accounts receivable, and trade products and services, through a dedicated team of treasury professionals and local commercial bankers, to help its business and institutional customers enhance liquidity, improve operations, and reduce risk.

1

In addition, through its strategic partnership with LPL Financial Holdings Inc., a registered investment advisor and broker-dealer, and both a Financial Industry Regulatory Authority and Securities Investor Protection Corporation member, Commercial Banking's wealth group offers an array of wealth management solutions to business owners, operators, and consumers within Webster's targeted markets and retail footprint, including trust, asset management, financial planning, insurance, retirement, and investment products. Webster Bank has employees located throughout its distribution network who are registered representatives of LPL Financial Holdings Inc.

HSA Bank, serviced through Webster Servicing LLC, offers a comprehensive consumer-directed healthcare solution that includes HSAs, health reimbursement arrangements, flexible spending accounts, and commuter benefits. HSAs are used in conjunction with high deductible health plans in order to facilitate tax advantages for account holders with respect to health care spending and savings, in accordance with applicable laws. HSAs are distributed nationwide directly to employers and individual consumers, as well as through national and regional insurance carriers, benefit consultants, and financial advisors. HSA Bank deposits provide long-duration, low cost funding that is used to minimize the Bank's use of wholesale funding in support of its loan growth. Non-interest revenue is generated predominantly through service fees and interchange income.

Retail Banking operates a distribution network across southern New England and into Westchester Country, New York, that comprised 130 banking centers and 251 ATMs, a customer care center, and a full range of web and mobile-based banking services. Retail Banking's business units consist of Consumer Lending and Small Business Banking.

•Consumer Lending offers consumer deposit and fee-based services, residential mortgages, home equity lines, secured and unsecured loans, and credit card products.

•Small Business Banking offers credit, deposit, and cash flow management products targeted to businesses and professional service firms with annual revenues of up to $2 million.

Additional information regarding Webster's reportable segments can be found in Part II under the section captioned "Segment Reporting" contained Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and within Note 21: Segment Reporting in the Notes to Consolidated Financial Statements contained in Item 8. Financial Statements and Supplementary Data.

Human Capital Resources

As a values-driven organization, our employees are the cornerstone of our success. At December 31, 2021, Webster had 3,245 total employees, which included 2,424 full-time, 452 part-time, and 369 temporary employees, and consisted of approximately 60% female and 40% male employees. None of our employees were represented by a collective bargaining agreement.

Diversity, Equity, Inclusion and Belonging

We believe that our focus on diversity, equity, inclusion, and belonging (DEIB) is a critical component of how we support the increasingly diverse perspectives of our employees and clients. It is not only key to our long-term growth, but also having a workforce comprised of diverse identities, backgrounds, and experiences better helps the clients and communities we serve. Our commitment to DEIB starts with Webster's senior leadership team, who continuously work to ensure that DEIB is integrated into the way we do business. Webster has established a DEIB Council, which serves as a platform where senior leaders and representatives of our various business resource groups shape the strategy and actions of our DEIB efforts. The Council currently comprises 22 employee members across the organization and is co-chaired by our Chief Executive Officer and Executive Vice President of Business Banking, both of whom make recommendations on ways to integrate DEIB in the areas of education and awareness, talent development, employee engagement, and client and community service. We also have an appointed DEIB Officer to expand our DEIB programs and grow partnerships within our local communities, and to promote a diverse workforce in an open, inclusive environment.

Compensation and Benefits

Webster's compensation program aims to attract, retain, and reward high-performing talent at all levels of the organization through a pay-for-performance philosophy. Variable payment opportunities are available to all employees, including corporate incentive plans, sales/service commission or incentive plans, and equity plans for senior-level executives. Comprehensive benefits and wellness resources are provided to employees, including medical, dental, vision, wellness incentives, life insurance, voluntary supplemental life insurance, short-term and long-term disability, as well as a 401(k) retirement savings plan with a company match, Employee Stock Purchase Plan, Employee Assistance Program, parental leave, and paid time off. Webster shares in the costs of benefits with its employees by paying approximately 80% of all insurance costs. In addition, Webster contributes to participating employees’ HSAs through earned incentives for completing activities such as biometric screenings, wellness physicals, and dental exams. Benefit trends are reviewed regularly and plans are adjusted accordingly to remain competitive. We believe that our current benefits practices play a key role in employee retention. At December 31, 2021, the average employee tenure was approximately 8.2 years.

2

Learning and Development

We are focused on investing in our current and future talent by actively supporting the success, growth, and career progression of our employees. Webster's learning and development strategy comprises five core areas: (i) business education and job-specific training, (ii) professional development, (iii) leadership development, (iv) compliance training, and (v) career programs and certifications. Our employees have access to hundreds of offerings through Webster Bank University, the Company's internal destination for learning where we have made available various types of virtual content, from on-demand webinars to podcasts and e-learning modules. Webster also provides free access to online courses taught by industry experts with curated learning paths that are designed specifically for their professional interests.

Competition

Webster is subject to strong competition from banks, thrifts, credit unions, non-bank health savings account trustees, consumer finance companies, investment companies, insurance companies, and online lending and savings institutions. Certain of these competitors are larger financial institutions with substantially greater resources, lending limits, larger branch systems, and a wider array of commercial and consumer banking services than Webster. Competition could intensify in the future as a result of industry consolidation, the increasing availability of products and services from non-bank organizations, greater technological developments in the industry, and continued bank regulatory reforms.

Webster faces substantial competition for deposits and loans throughout its market areas. The primary factors in competing for deposits are interest rates, personalized services, the quality and range of financial services, convenience of office locations and hours, mobile banking, and other automated services. Competition for deposits comes from other commercial banks, thrifts, credit unions, non-bank health savings account trustees, mutual funds, and other investment alternatives. The primary factors in competing for consumer and commercial loans are interest rates, loan origination fees, ease and convenience of loan origination channels, the quality and range of lending services, personalized service, and the ability to close within customers’ desired time frame. Competition for the origination of loans comes primarily from commercial banks, non-bank lenders, savings institutions, mortgage banking firms, mortgage brokers, online lenders, and insurance companies. Other factors that affect competition include the general and local economic conditions, current interest rate levels, and volatility in the lending markets.

Supervision and Regulation

Webster and its bank and non-bank subsidiaries are subject to extensive regulation under federal and state laws. The regulatory framework applicable to bank holding companies and their depository institutions is intended to protect depositors, the Federal Deposit Insurance Fund, consumers, and the U.S. banking system as a whole, not necessarily investors in bank holding companies such as Webster.

Set forth below is a summary of the significant elements of the laws and regulations applicable to Webster and its bank and non-bank subsidiaries. The description that follows is qualified in its entirety by reference to the full text of the statutes, regulations, and policies that are described. Banking statutes, regulations, and policies are continually under review by Congress, state legislatures, and federal and state regulatory agencies. Changes in the statutes, regulations, or regulatory policies applicable to Webster and its bank and non-bank subsidiaries, including how they are implemented or interpreted, could have a material effect on the results of the Company.

Regulatory Agencies

Webster Financial Corporation is a separate and distinct legal entity from Webster Bank and its other subsidiaries. As a registered bank holding company and a financial holding company, Webster is subject to regulation under the BHC Act and to inspection, examination, and supervision by its primary regulator, the Board of Governors of the Federal Reserve System. Webster is also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, both of which are administered by the United States Securities and Exchange Commission (SEC). As a company with securities listed on the New York Stock Exchange (NYSE), Webster is subject to the rules of the NYSE for listed companies.

Webster Bank is organized as a national banking association under the National Bank Act, and is subject to the supervision of and regular examination by the Office of the Comptroller of the Currency (OCC), its primary federal regulator, as well as by the Federal Deposit Insurance Corporation (FDIC), its deposit insurer. As a national banking association, Webster Bank derives its lending, investment, and other bank activity powers from the National Bank Act, as amended, and the regulations of the OCC promulgated thereunder. In addition, the Consumer Financial Protection Bureau (CFPB) supervises the Bank to ensure compliance with federal consumer financial protection laws.

Webster’s non-bank subsidiaries are also subject to regulation by the Board of Governors of the Federal Reserve System and other applicable federal and state agencies.

3

The Dodd-Frank Act

Created as a response to the 2008 financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) significantly altered the financial system regulatory regime in the United States. Since its enactment, the financial services industry has been subject to increased regulation and oversight through enhanced federal government accountability and transparency measures.

On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (EGRRCPA) was signed into law, which repealed and amended certain provisions of the Dodd-Frank Act, providing regulatory relief to smaller, less complex banking organizations primarily as it relates to enhanced prudential standards, and stress testing and liquidity requirements (discussed further below). In addition to amending the Dodd-Frank Act, EGRRCPA also modified other provisions regarding bank compliance, consumer protection, and securities laws, to which the federal banking agencies have issued certain corresponding guidance and proposed or final rules.

Bank Holding Company Activities

In general, the BHC Act limits the business of bank holding companies to banking, managing, or controlling banks and other activities that the Board of Governors of the Federal Reserve System has determined to be closely related to banking. Bank holding companies that qualify and elect to become financial holding companies, such as Webster, may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Board of Governors of the Federal Reserve System in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity, and that does not pose a substantial risk to the safety and soundness of depository institutions or the financial system (as solely determined by the Board of Governors of the Federal Reserve System). Activities that are financial in nature include securities underwriting, dealing and market making, sponsoring mutual funds and investment companies, insurance underwriting, and merchant banking.

Mergers and Acquisitions

Under the BHC Act, prior approval from the Board of Governors of the Federal Reserve System is required in order for any bank holding company to (i) acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank, (ii) acquire all or substantially all of the assets of a bank, or (iii) merge or consolidate with any other bank holding company. On January 30, 2020, the Federal Reserve System issued a final rule that revised its regulations related to determinations of whether a company has the ability to exercise a controlling influence over another company for purposes of the BHC Act, thereby expanding the number of presumptions for use in such determination and providing greater transparency on the types of relationships that the Federal Reserve System generally views as supporting a determination of control. The new rule became effective April 1, 2020.

Pursuant to Section 18(c) of the Federal Deposit Insurance Act (FDIA), more commonly known as the Bank Merger Act, and for national banks relying on certain other sources of merger authority, prior written approval from a bank's primary federal regulator is required before any insured depository institution may consummate a merger transaction, which includes a merger, consolidation, assumption of deposit liabilities, and certain asset transfers between or among two or more institutions. Prior written approval of a bank's primary federal regulator is also required for merger transactions between or among affiliated institutions, as well as for merger transactions between or among non-affiliated institutions. Transactions that do not involve a transfer of deposit liabilities typically do not require prior approval under the Bank Merger Act, unless the transaction involves the acquisition of all or substantially all of an institution's assets. When evaluating and acting on proposed merger transactions, regulators consider the extent of existing competition between and among the merging institutions, other depository institutions, and other providers of similar or equivalent services in the relevant product and geographic markets, the convenience and needs of the community to be served, capital adequacy and earnings prospects, and the effectiveness the merger institutions in combating money-laundering activities, among other factors.

Further, the Change in Bank Control Act of 1978 generally prohibits any person, acting directly or indirectly or in concert with other persons, from acquiring control of a covered institution without providing at least 60 days prior written notice to the FDIC or upon receipt of written notice that the FDIC does not disapprove of the acquisition.

On September 29, 2021, the Bank Merger Review Modernization Act of 2021 was introduced in Congress to amend the current bank merger processes and requirements under the FDIA. Among its provisions, the legislation would authorize the CFPB to deny bank merger applications if the new consolidated institution would not have adequate systems in place to ensure compliance with federal consumer laws. Other provisions would require federal banking agencies to perform a cost-benefit analysis and apply an enhanced competitive effects analysis for a proposed bank merger on the applicable banking markets as well as the performance of the merging institutions under the Community Reinvestment Act of 1977 (CRA). Following its introduction, the legislation was referred to committee and no further action thereon has occurred. Webster continues to monitor the status of this legislation to determine what impact, if any, its potential passage and entry into law may have on the Holding Company and Webster Bank.

4

Capital Adequacy

The Board of Governors of the Federal Reserve System, the OCC, and the FDIC have adopted the regulatory capital standards in accordance with Basel III, as developed by the Basel Committee on Banking Supervision (Basel III Capital Rules). The Basel III Capital Rules, which were fully phased-in on January 1, 2019, strengthened international capital standards by increasing institutions' minimum capital requirements and holdings of high quality liquid assets, and decreasing bank leverage.

Under the Basel III Capital Rules, Webster's assets, exposures, and certain off-balance sheet commitments and obligations are subject to risk weights used to determine risk-weighted assets. Risk weights can range from 0% for U.S. government securities to 1,250% for certain tranches of complex securitization or equity exposures. Risk-weighted assets serve as the base against which regulatory capital is measured, and are used to calculate Webster's and Webster Banks' minimum capital ratios of CET1 capital to total risk-weighted assets (CET1 risk-based capital), Tier 1 capital to total risk-weighted assets (Tier 1 risk-based capital), Total capital to total risk-weighted assets (Total risk-based capital), and Tier 1 capital to average tangible assets (Tier 1 leverage capital), as defined in the regulations, which Webster is required to maintain. CET1 capital consists of common shareholders' equity less deductions for goodwill and other intangible assets, and certain deferred tax adjustments. At the time of initial adoption of the Basel III Capital Rules, Webster had elected to opt-out of the requirement to include certain components of accumulated other comprehensive income (AOCI) in CET1 capital. Tier 1 capital consists of CET1 capital plus preferred stock. Total capital consists of Tier 1 capital and Tier 2 capital (as defined in the regulations). Tier 2 capital includes subordinated debt and the permissible portion of the ACL.

The following table summarizes the ratio thresholds applicable to Webster pursuant to the Basel III Capital Rules:

	Adequately Capitalized	Well Capitalized
CET1 risk-based capital	4.5%	6.5%
Total risk-based capital	8.0	10.0
Tier 1 risk-based capital	6.0	8.0
Tier 1 leverage capital	4.0	5.0

In addition, the Basel III Capital Rules mandate that most deductions from or adjustments to regulatory capital be made to CET1 capital, not to the other components. For instance, the deduction of mortgage servicing assets, certain deferred tax assets (DTAs), and capital investments in unconsolidated financial institutions is required to the extent that any one such category exceeds 10% of CET1 capital or exceeds 15% of CET1 capital in the aggregate.

The Basel III Capital Rules also include a capital conservation buffer comprised entirely of CET1 capital, which is considered in addition to the 4.5% CET1 capital ratio, and is equal to 2.5% of risk-weighted assets for both Webster and Webster Bank. This buffer is designed to absorb losses during periods of economic stress, and is generally required in order to avoid limitations on capital distributions and certain discretionary bonus payments to executive officers.

On July 22, 2019, the federal banking agencies issued a final rule that simplified the regulatory capital treatment for mortgage servicing assets, certain DTAs arising from temporary differences, investments in the capital of unconsolidated financial institutions, and the calculation of minority interest. These provisions were effective as of April 1, 2020.

On August 26, 2020, in response to the COVID-19 pandemic, the federal banking agencies issued a final rule that provided banking organizations that implemented Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses, Topic 326, Measurement of Credit Losses on Financial Instruments (CECL) during 2020, the option to delay an estimate of CECL's effect on regulatory capital for two years ending on January 1, 2022, followed by a three-year transition period ending on December 31, 2024. Webster elected to utilize the 2020 capital transition relief and delayed the regulatory capital impact of adopting CECL. Both Webster Financial Corporation's and Webster Bank's ratios remain in excess of being well-capitalized, even without the benefit of the delayed CECL adoption impact.

Prompt Corrective Action

Pursuant to Section 38 of the FDIA, the federal banking agencies are required to take prompt corrective action if an insured depository institution fails to meet certain capital adequacy standards.

The following table summarizes the prompt corrective action categories:

	Well		Adequately		Under	Significantly
	Capitalized		Capitalized		Capitalized	Under Capitalized
CET1 risk-based capital	6.5	%	4.5	%	< 4.5%	< 3.0%
Total risk-based capital	10.0		8.0		< 8.0	< 6.0
Tier 1 risk-based capital	8.0		6.0		< 6.0	< 4.0
Tier 1 leverage capital	5.0		4.0		< 4.0	< 3.0

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In addition, an insured depository institution with a ratio of tangible equity less than or equal to 2% is considered to be critically under capitalized. If an insured depository institution has been determined, after notice and opportunity for a heading, to be in an unsafe or unsound condition, or if it receives a less-than-satisfactory rating for asset quality, management, earnings, or liquidity in its most recent examination, the appropriate federal banking agency may downgrade a well capitalized, adequately capitalized, or under capitalized insured depository institution to the next lower capital category.

All insured depository institutions, regardless of their capital category, are prohibited from making capital distributions or paying management fees if such distributions or payments would result in the insured depository institution becoming under capitalized, unless it is shown that the capital distribution would improve financial condition or the management fee is being paid to a person or entity without a controlling interest in the insured depository institution. Restrictions are placed on certain brokered deposit activity and on deposit rates offered as the capital category declines below well capitalized. Further, if an insured depository institution receives notice that it is under capitalized, significantly under capitalized, or critically under capitalized, the insured depository institution generally must file a written capital restoration plan with the appropriate federal banking agency within 45 days of receipt, and the bank holding company must guarantee the performance of that plan.

Dividends

The Holding Company is dependent upon dividends from Webster Bank to provide funds for its cash requirements, including the payment of dividends to shareholders. Dividends paid by the Bank are subject to various federal and state regulatory limitations. Express approval by the OCC is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels, or would exceed the net income for that year combined with the undistributed net income for the preceding two years. During the year ended December 31, 2021, Webster Bank paid $200.0 million in dividends to the Holding Company and had $508.0 million of undistributed net income available for the payment of dividends at December 31, 2021.

In addition, federal banking regulators have the authority to prohibit Webster from engaging in safe or unsound practices in conducting its business. The payment of dividends, depending on the financial condition of the Bank, could be deemed an unsafe or unsound practice, especially if its capital base is depleted to an inadequate level. The ability of Webster Bank to pay dividends in the future is currently, and could be further, influenced by bank regulatory policies and capital requirements.

Enhanced Prudential Standards

Section 165 of the Dodd-Frank Act requires the Board of Governors of the Federal Reserve System to establish enhanced prudential standards for larger bank holding companies. On October 10, 2019, pursuant to the enactment of the EGRRCPA, the Federal Reserve Board, along with other federal bank regulatory agencies, adopted two rules outlining tailored prudential standards allowing bank holding companies with total consolidated assets of $250 billion or less, such as Webster Financial Corporation, to be exempt from certain enhanced capital and liquidity prudential standards imposed under Section 165, including company-run stress testing, capital planning, liquidity coverage ratio, and resolution planning requirements, among others. Although Webster Financial Corporation is no longer required to conduct company-run stress testing for itself and Webster Bank, the Company continues to perform certain stress tests internally and incorporates the economic models and information developed through its stress testing program into its risk management and capital planning activities, which continue to be subject to the regular supervisory processes of the Federal Reserve System and the OCC.

In addition, under a prior rule issued by the Federal Reserve Board that implemented Section 165 of the Dodd-Frank Act's enhanced prudential standards, certain publicly traded bank holding companies are required to establish a risk committee that is responsible for the oversight of enterprise risk management (ERM) practices and that meets other statutory requirements. The EGRRCPA raised the threshold for mandatory application of the risk committee requirement from publicly traded bank holding companies with $10 billion or more in total consolidated assets to $50 billion or more. Notwithstanding this change implemented by EGRRCPA, Webster has maintained its standing Risk Committee of the Board of Directors, which is comprised of at least three independent directors.

Volcker Rule

Section 619 of the Dodd-Frank Act, commonly referred to as the Volcker Rule, prohibits banking entities, such as the Holding Company and Webster Bank, from (i) engaging in short-term proprietary trading of certain securities, derivatives, commodity futures, and options on these investments for their own account, and (ii) imposes limits on investments in, and other relationships with hedge funds or private equity funds. Like the Dodd-Frank Act, the Volcker Rule provides exemptions for certain activities, including market making, underwriting, hedging, trading in government obligations, insurance company activities, and organizing and offering hedge funds or private equity funds. The Volcker rule also clarifies that certain activities are not prohibited, including acting as agent, broker, or custodian. Banking entities with significant trading operations (those with $20 billion or more in average trading assets and liabilities) are required to establish a detailed compliance program to which their Chief Executive Officers are required to attest that the program is reasonably designed to achieve compliance with the Volcker Rule.

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The EGRRCPA and subsequent promulgation of interagency rules have aimed to simplify and tailor the Volcker Rule's requirements. On June 25, 2020, the Federal Reserve System, Commodity Futures Trading Commission, FDIC, OCC, and SEC issued a final rule that modified the Volcker Rule's prohibition on banking entities investing in or sponsoring hedge funds or private equity funds, known as covered funds. The final rule modifies three areas of the Volcker Rule by (i) streamlining the covered funds portion of the rule, (ii) addressing the extraterritorial treatment of certain foreign funds, and (iii) permitting banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was intended to address. The new rule became effective October 1, 2020. The Federal Reserve System had granted Webster an extension until July 21, 2022 to bring its holdings into compliance with the Volcker Rule. Webster dissolved its remaining holdings in illiquid covered funds during 2021 and is fully compliant with the Volcker Rule as of December 31, 2021.

Federal Reserve System

Federal Reserve System regulations require depository institutions to maintain reserves against its transaction accounts and non-personal time deposits for the purposes of implementing monetary policy. The reserve requirement must be satisfied in the form of vault cash and, if vault cash is insufficient, by maintaining a balance in an account at a Federal Reserve Bank (FRB). The Federal Reserve Act (FRA) authorizes different ranges of reserve requirement ratios depending on the amount of transaction account balances held at each depository institution. Pursuant to the FRA, a zero percent reserve requirement ratio shall be applied to total reservable liabilities that do not exceed a certain amount, known as the reserve requirement exemption amount. In addition, transaction account balances maintained over the reserve requirement exemption amount and up to a certain amount, known as the low reserve tranche, may be subject to a reserve requirement ratio of not more than 3 percent (and which may be zero), and transaction account balances over the low reserve tranche may be subject to a reserve requirement ratio of not more than 14 percent (and which may be zero). The reserve requirement exemption and the low reserve tranche are both subject to adjustment on an annual basis, as applicable, by the Board of Governors of the Federal Reserve System.

Effective March 26, 2020, in response to the COVID-19 pandemic, the reserve requirement ratios on all net transaction accounts were reduced to zero percent, thereby eliminating reserve requirements for all depository institutions. The annual indexation of the reserve requirement exemption amount and the low reserve tranche for 2021 was required by statute, but did not affect depository institutions' reserve requirements, which has remained at zero.

Further, as a national bank and a member of the Federal Reserve System, the Bank is required to subscribe to the capital stock of its district FRB in an amount equal to 6% of its capital and surplus, of which 50% is paid. The remaining 50% is subject to call by the Board of Governors of the Federal Reserve System. At December 31, 2021, Webster Bank held an FRB of Boston stock investment of $60.5 million.

Federal Home Loan Bank System

The Federal Home Loan Bank (FHLB) System provides a central credit facility for its member institutions. Webster Bank, as a member of the FHLB, is required to purchase and hold shares of FHLB capital stock for its membership and other activities in an amount equal to 0.35% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, up to a maximum of $25 million, plus an amount that varies from 3.0% to 4.5% depending on the maturities of its FHLB advances, of which there were $11.0 million outstanding at December 31, 2021. Webster Bank was in compliance with these requirements at December 31, 2021, and held an FHLB of Boston stock investment of $11.3 million.

Source of Strength Doctrine

Section 616 of the Dodd-Frank Act and Federal Reserve System regulations require that bank holding companies serve as a source of financial strength to their subsidiary banks and commit resources to support each of their subsidiary banks. This support may be required at times when the Holding Company is not in a financial position to provide such resources without adversely affecting its ability to meet other obligations. The Federal Reserve System may require a bank holding company to make capital injections into a troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices if it fails to commit resources to such a subsidiary bank, or if it undertakes actions that the Federal Reserve System believes might jeopardize the bank holding company's ability to commit resources to such subsidiary bank. Capital loans by banking holding companies to its subsidiary banks would be subordinate in right of payment to deposits and certain other debts of the subsidiary bank. In the event of bankruptcy, any commitment by a bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and entitled to a priority of payment.

In addition, under the National Bank Act, if Webster Bank's capital stock is impaired by losses or otherwise, the OCC is authorized to require payment of the deficiency by assessment upon the Holding Company. If the assessment is not paid within three months after receiving notice thereof, the OCC could order a sale of Webster Bank stock held to cover any deficiency.

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Safety and Soundness Standards

The federal banking agencies have adopted the rules and regulations under the Interagency Guidelines Establishing Standards for Safety and Soundness pursuant to Section 39 of the FDIA, which are applicable to all insured depository institutions. These guidelines prescribe standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees, and benefits, asset quality, earnings, and stock valuation, as determined to be appropriate. If a federal banking agency determines that an institution fails to meet any of the established standards, the agency may require the institution to submit an acceptable plan to achieve compliance with the standard. In the event that an institution fails to submit an acceptable plan within the time allowed, or fails, in any material respect, to implement an accepted plan, the agency must require the institution to correct the deficiency and may take other supervisory and enforcement actions until the deficiency is corrected.

In more serious instances, enforcement actions may include (i) the issuance of directives to increase capital, the issuance of formal and informal agreements, (ii) the imposition of civil monetary penalties, (iii) the issuance of a cease and desist order that can be judicially enforced, (iv) the issuance of removal and prohibition orders against officers, directors, and other institution affiliated parties, (v) the termination of the insured depository institution’s deposit insurance, (vi) the appointment of a conservator or receiver for the insured depository institution, and (vii) injunctions or restraining orders based upon a judicial determination that the FDIC, as receiver, would be harmed if such equitable relief was not granted.

Transactions with Affiliates and Insiders

Transactions between insured depository institutions and their affiliates are governed by Sections 23A and 23B of the FRA and Federal Reserve Regulation W. In a bank holding company context, at a minimum, the parent holding company of a national bank, and any companies that are controlled by such parent holding company, are considered affiliates of the bank. Generally, sections 23A and 23B of the FRA are intended to protect insured depository institutions from losses arising from transactions with non-insured affiliates by (i) limiting the extent to which an institution or its subsidiaries may engage in covered transactions with any one affiliate and with all affiliates in the aggregate, and (ii) requiring that all such transactions be on terms substantially the same, or at least favorable, to the institution or subsidiary as those provided to a non-affiliate. The term covered transaction includes the making of loans, purchase of assets, the issuance of a guarantee, and similar types of transactions. Certain covered transactions must be collateralized according to a schedule set forth in the statue.

In addition, Section 22(h) of the FRA and Federal Reserve Regulation O restricts loans to directors, executive officers, and principal stockholders or insiders. Pursuant to Section 22(h), loans to directors, executive officers, and principal stockholders must be made on terms substantially the same as offered in comparable transactions to other persons, except that such insiders may receive preferential loans made under a benefit or compensation program that is widely available to the institution's employees and does not give preference to the insider over the employees. Further, loans to insiders and their related interests may not exceed, together with all other outstanding loans to such persons and affiliated entities, the institution’s total capital and surplus. Loans to insiders above specified amounts must receive prior approval from the Company's Board of Directors. Section 22(g) of the FRA places additional limitations on loans to executive officers.

Consumer Protection and Consumer Financial Protection Bureau Supervision

The Dodd-Frank Act centralized the responsibility for consumer financial protection through the establishment of the CFPB, an independent agency charged with implementing, enforcing, and examining compliance with federal consumer financial protection laws. As an insured depository institution with more than $10 billion in total assets, Webster Bank is subject to supervision by the CFPB. Webster is subject to a number of federal laws designed to protect borrowers and promote lending, including, but not limited to, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Procedures Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Practices Act, and the Consumer Financial Protection Act of 2010, which is part of the Dodd-Frank Act. The Dodd-Frank Act permits states to adopt more stringent consumer protection laws and allows state attorneys general to enforce the consumer protection rules issued by the CFPB.

In addition, the Truth in Lending Act requires creditors to make a reasonable, good faith determination of a consumer's ability to repay their mortgage loans prior to extending them credit. In making ability-to-repay determinations, creditors must consider numerous underwriting factors, as prescribed therein, and use reliable third-party records to verify the information they use to evaluate such factors. Alternatively, the creditor can originate qualified mortgages (QMs), which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. A QM is generally defined as a loan without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. The consumer is also required to have a total debt-to-income ratio that is less than or equal to 43%. Further, the Truth in Lending Act provides a safe harbor for loans that satisfy the definition of a qualified mortgage and are not higher-priced and a rebuttable presumption for higher-priced mortgage loans.

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On December 10, 2020, the CFPB issued two final rules amending the ability-to-repay and QM rules of the Truth in Lending Act. The first replaces the existing 43% debt-to-income ratio limit in the General QM definition with price-based thresholds, among other changes, and the second creates a new category of QMs, called the Seasoned QM. A loan is eligible to become a Seasoned QM if the loan meets certain product restrictions at the end of the 36-month seasoning period, including (i) is secured by a first lien, (ii) has a fixed rate, (iii) has regular, substantially equal periodic payments that are fully amortizing, does not allow negative amortization, and does not have a balloon payment, (iv) the term does not exceed 30 years, and (v) is not a higher-priced mortgage. The first rule has a mandatory compliance date of October 1, 2022. The second rule applies to covered transactions for which institutions received an application after March 1, 2021, however due to the 36-month seasoning period, there was no immediate impact to Webster.

In addition, on December 7, 2021, the CFPB issued a final rule amending Regulation Z, which implements the Truth in Lending Act, to address the anticipated sunset of LIBOR for consumer financial products, which is expected to be discontinued for most U.S. Dollar (USD) tenors in June 2023. Specifically, the CFPB is amending: (i) the open-end and closed-end provisions to provide examples of replacement indices for LIBOR indices that meet certain Regulation Z standards, (ii) to permit creditors for home equity lines of credit and card issuers for credit card accounts to transition existing accounts that use a LIBOR index to a replacement index on or after April 1, 2022, if certain conditions are met, (iii) to address change-in-terms notice for home equity lines of credit and credit card accounts and how they apply to accounts transitioning away from using a LIBOR index, and (iv) to address how the rate reevaluation provisions applicable to credit card accounts apply to the transition from using a LIBOR index to a replacement index.

For closed-end credit, the final rule identified certain SOFR-based spread-adjusted indices recommended by the Alternative Reference Rates Committee (ARRC) for consumer products as examples to illustrate a reference rate that would be comparable to replace 1-month, 3-month, or 6-month tenors of USD LIBOR. For open-end credit, the final rule states that the chosen replacement index must have historical fluctuations that are substantially similar to those of the LIBOR index, and identifies certain SOFR-based spread-adjusted indices recommended by the ARRC for consumer products and the Prime rate as examples that meet this standard. However, the CFPB is reserving judgment about whether to include references to a 1-year USD LIBOR index and its replacement index until it obtains additional information. The final rule becomes effective April 1, 2022.

Additional information regarding the LIBOR transition, including risk factors associated with its discontinuation and Webster's transition plan, can be found in Part I - Item 1A. Risk Factors and under the section captioned "LIBOR Transition" contained elsewhere in Part I - Item 1. Business

Identity Theft

The Commodity Futures Trading Commission and SEC jointly issued final rules and guidelines, implementing provisions of the Dodd-Frank Act, that required certain regulated entities to establish programs to address risks of identity theft. In accordance with these rules, financial institutions and creditors are required to develop and implement a written identity theft prevention program designed to detect, prevent, and mitigate identity theft in connection with certain existing accounts or the opening of new accounts. The rules include guidelines to assist entities in the formulation and maintenance of programs that would satisfy the requirements of the rules. Further, the rules established special requirements for any credit and debit card issuers that are subject to the Commodity Futures Trading Commission and SEC jurisdictions to assess the validity of notifications of changes of address under certain circumstances. Webster has an Identity Theft Prevention Program in place, which is approved by the Board of Directors, satisfying its compliance with these requirements.

Financial Privacy and Data Security

Webster is subject to federal and certain state laws and regulations containing consumer privacy and data protection provisions. The Gramm-Leach-Bliley Act, along with the implemented regulations issued by the federal banking regulatory agencies, govern the treatment of nonpublic personal information about consumers by financial institutions. Subject to certain exceptions, the Financial Privacy Rule of the Gramm-Leach-Bliley Act states that financial institutions are prohibited from disclosing nonpublic personal information about a consumer to nonaffiliated third parties, unless the institution satisfies various notice and opt-out requirements and the consumer has not elected to opt out of the disclosure. Regardless as to whether a financial institution shares nonpublic personal information, the institution must provide notice of its privacy policies and practices to its consumers, and must follow redisclosure and reuse limitations on any nonpublic personal information it receives from a nonaffiliated financial institution.

In addition, the Safeguards Rule of the Gramm-Leach-Bliley Act requires that each financial institution develops, implements, and maintains a comprehensive written information security program that is inclusive of certain prescribed elements and contains appropriate administrative, technical, and physical safeguards to protect consumer information. The federal banking regulatory agencies have also adopted guidelines for establishing information security standards and programs to protect such information, with an increased focus on risk management and processes related to information technology, and the use of third-parties. The expectation from the federal banking regulatory agencies is that financial institutions have established lines of defense to ensure that their risk management processes address the risks posed by compromised customer credentials, and that the financial institution has sufficient business continuity planning processes to ensure rapid recovery, resumption, and maintenance of operations after a cyber-attack.

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Pursuant to interpretive guidance issued under the Gramm-Leach-Bliley Act and certain state data breach notification laws, financial institutions are required to notify customers of security breaches that result in unauthorized access to their nonpublic personal information. Further, on November 18, 2021, the Board of Governors of the Federal Reserve System, the OCC, and the FDIC issued a final rule that requires a banking organization to notify its primary regulator of certain types of computer security incidents that result in harm to the confidentiality, integrity, or availability of an information system or the information that the system processes, stores, or transmits, as soon as possible and no later than 36 hours after the banking organization determines that a notification incident has occurred. The final rule also requires a bank service provider to notify each affected banking organization customer as soon as possible when the bank service provider determines that is has experienced a computer-security incident that has caused, or is reasonably likely to cause, a material service disruption or degradation for four or more hours. The final rule becomes effective April 1, 2022, and compliance with the final rule is required by May 1, 2022.

Back on October 19, 2016, the Board of Governors of the Federal Reserve System, the OCC, and the FDIC approved an advance notice of proposed rulemaking inviting comment on a set of potential enhanced cybersecurity risk-management and resilience standards that would apply to large and interconnected entities under their supervision, as well as to services provided by third parties to these institutions. Although the comment period for these proposed rules had since closed, and a final rule has not yet been published, the proposed rules were considered to apply to depository institutions and depository institution holding companies with total consolidated assets of $50 billion or more, which includes Webster effective February 1, 2022.

Depositor Preference

The FDIA provides that, in the event of the liquidation or other resolution of an insured depository institution, including the Bank, the claims of depositors of the institution (including the claims of the FDIC as subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as a receiver will have priority over other general unsecured claims against the institution. If an insured depository institution fails, claims of insured and uninsured depositors, along with claims of the FDIC, would have priority in payment ahead of unsecured, non-deposit creditors, including the Holding Company, with respect to any extensions of credit they have made to such insured depository institution.

Federal Deposit Insurance

The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, for each account ownership category. The Federal Deposit Insurance Fund is funded mainly through quarterly assessments on insured depository institutions, such as Webster Bank, and provides insurance coverage for certain deposits up to this maximum amount.

Webster Bank's assessment is calculated in accordance with the FDIC's standardized risk-based methodology by multiplying its assessment rate by its assessment base, which are determined and paid each quarter. The assessment base equals the Bank's average consolidated total assets less average tangible equity during the assessment period. As a large bank, or generally one with $10 billion or more in assets, Webster Bank is assigned an individual rate based on a scorecard, which combines CAMELS (capital adequacy, asset quality, management, earnings, liquidity, and sensitivity) component ratings, financial measures used to measure a bank's ability to withstand asset-related and funding-related stress, and a measure of loss severity that estimates the relative magnitude of potential losses to the FDIC in the event of the bank's failure, to produce a score that is then converted to an assessment rate. Assessment rates could be subject to adjustment by the FDIC. For instance, assessment rates decrease for issuance of long-term unsecured debt, including senior unsecured debt and subordinated debt, increase for holdings of long-term unsecured or subordinated debt issued by other banks, and increase for significant holdings of brokered deposits for large banks that are not well-rated or not well-capitalized.

Under the FDIA, the FDIC may terminate a depository institution's deposit insurance upon a finding that the institution's financial condition is unsafe or unsound, or that the institution has engaged in unsafe and unsound practices, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. Webster’s management is not aware of any practice, violation, or condition that might lead to the termination of its deposit insurance.

Debit Card Interchange Fees

The Durbin Amendment to the Dodd-Frank Act requires that the amount of any interchange transaction fee that an issuer may receive or charge with respect to an electronic debit transaction shall be reasonable and proportional to the cost incurred by the issuer with respect to the transaction, and imposes requirements regarding routing and exclusivity of electronic debit transactions and the usability of debit cards across networks. Pursuant to the Durbin Amendment, interchange fees for certain electronic debit transactions are capped at 21 cents plus 0.05% of the transaction value for issuers with over $10 billion in consolidated assets, such as Webster Bank. The regulation also allows covered issuers to receive 1 cent per transaction for fraud-prevention costs, provided that the issuer meets the fraud-prevention standards established by the Board of Governors of the Federal Reserve System. HSA Bank's interchange revenue is not subject to these rules.

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Incentive Compensation

The Dodd-Frank Act requires the federal bank regulatory agencies and the SEC to establish joint regulations or guidelines for covered financial institutions with at least $1 billion in total consolidated assets, including the Holding Company and the Bank, to prohibit incentive-based payment arrangements that encourage inappropriate risks by providing an executive officer, employee, director, or principal shareholder with excessive compensation, fees, or benefits that could lead to a material financial loss to the institution. A proposed rule was issued in 2016, which has not yet been finalized. If the rules are adopted in the form initially, they will restrict the manner in which executive compensation is presently structured.

Community Reinvestment Act and Fair Lending Laws

Webster Bank has a responsibility under the CRA to help meet the credit needs of its communities, including low and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products or services that it believes are best suited to its particular community. In connection with its examination, the OCC assesses Webster Bank’s record of compliance with the CRA. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit discrimination in lending practices on the basis of characteristics specified in those statutes. The Bank’s failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities, as well as the activities of Webster. Further, the Bank’s failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions against it by the OCC, as well as other federal regulatory agencies, including the CFPB and the Department of Justice. Webster Bank received a CRA rating of Outstanding in its most recent examination.

On June 5, 2020, the OCC adopted a final rule to strengthen and modernize the CRA by clarifying and expanding the activities that qualify for CRA credit, updating where activities count for CRA credit, creating a more consistent and objective method for evaluating CRA performance, and providing for more timely and transparent CRA-related data collection, recordkeeping, and reporting. The final rule took effect on October 1, 2020, and Webster Bank was required to comply with several of the more material components by January 1, 2023. However, on December 14, 2021, the OCC adopted a final rule that rescinded the June 2020 CRA rule (discussed above) and replaced it with a rule that is largely based on the 1995 CRA rules, as amended, that were issued by the OCC, Board of Governors of the Federal Reserve System, and FDIC. This final rule applies to national banks and savings institutions, and is intended to facilitate the ongoing interagency work to modernize the CRA regulatory framework and promote consistency for all insured depository institutions. All banks are required to comply with the final rules by January 1, 2022, except for the public file and public notice requirements, which have a compliance date of April 1, 2022. There was no adverse impact to the Bank's CRA compliance under the final rule, but Webster will continue to monitor its developments and assess the impact of further changes, if any, to CRA regulations proposed by the OCC, Board of Governors of the Federal Reserve System, and FDIC.

USA PATRIOT Act

Under Title III of the Uniting and Strengthening America by Providing Appropriate Tools Requirement to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), all financial institutions are required to take certain measures to identify their customers, prevent money laundering, monitor customer transactions, and report suspicious activity to U.S. law enforcement agencies. Financial institutions also are required to respond to requests for information from federal banking agencies and law enforcement agencies. Information sharing among financial institutions for the above purposes is encouraged by an exemption granted to complying financial institutions from the privacy provisions of the Gramm-Leach-Bliley Act and other privacy laws. Financial institutions that hold correspondent accounts for foreign banks or provide private banking services to foreign individuals are required to take measures to avoid dealing with certain foreign individuals or entities, including foreign banks with profiles that raise money laundering concerns, and are prohibited from dealing with foreign “shell banks” and persons from jurisdictions of particular concern. The primary federal banking agencies and the Secretary of the Treasury have adopted regulations to implement several of these provisions. All financial institutions also are required to establish internal anti-money laundering programs. The effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any application submitted by the financial institution under the Bank Merger Act. Webster has in place a Bank Secrecy Act and USA PATRIOT Act compliance program and engages in very few transactions of any kind with foreign financial institutions or foreign persons.

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Office of Foreign Assets Control Regulation

The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury is responsible for administering economic sanctions that affect transactions with designated foreign countries, nations, and others. The OFAC-administered sanctions take many different forms, and generally contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). OFAC also publishes lists of persons, organizations, and countries suspected of aiding, harboring, or engaging in terrorist acts, known as Specially Designated Nationals and Block Persons. Blocked assets (i.e., property and bank deposits) cannot be paid out, withdrawn, set off, or transferred in any manner without a license from the OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) implemented a broad range of corporate governance and accounting measures to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of disclosures under federal securities laws. We are subject to Sarbanes-Oxley because we are required to file periodic reports with the SEC under the Securities and Exchange Act of 1934. Among other things, Sarbanes-Oxley and/or its implementing regulations have established new membership requirements and additional responsibilities for our audit committee, imposed restrictions on the relationship between us and our outside auditors (including restrictions on the types of non-audit services our auditors may provide to us), imposed additional responsibilities for our external financial statements on our Chief Executive Officer and Chief Financial Officer, expanded the disclosure requirements for our corporate insiders, required our management to evaluate our disclosure controls and procedures and our internal control over financial reporting, and required our auditors to issue a report on our internal control over financial reporting.

Risk Management Framework

Webster defines risk as the potential that events, expected or unexpected, may have an adverse effect on its earnings, capital, or enterprise value. Webster maintains a structured ERM framework that provides an integrated, forward-looking approach to identifying, prioritizing, and managing key risk categories across the organization, including strategic, financial (treasury and accounting), information, credit, operational, compliance, legal, and reputational risk.

Executive management sets the tone and culture towards ERM through strategy setting, formulating objectives, approving resource allocations, and establishing and maintaining effective systems of internal controls. A strong risk culture is the foundation of effective ERM because it influences the decisions of management and employees when weighing risks and benefits. Management also encourages and supports risk self-identification and timely escalation throughout the organization.

A three line of defense model is utilized with regard to Webster’s risk management:

First Line: Line of Business Units

Line of business units have responsibility for identifying, assessing, escalating, controlling, and mitigating risks inherent to their core business activities arising from their chosen strategy and ongoing operations.

Second Line: Risk Management Functions

Risk management functions operate independent of the line of business and facilitate development and implementation of risk management practices, provide risk guidance and assist the lines of business in identification and mitigation of risk, monitor adequacy of risk responses and timeliness of remediation, and perform control testing.

Third Line: Independent Control Functions

Reporting directly to the Board of Directors, the independent control functions (i.e., Internal Audit, Credit Risk Review) perform assessments and evaluations of risk management practices and internal controls, identify issues, make recommendations, and inform the Board of Directors and executive management on matters that require remediation.

Risk identification is a continuous process and occurs at the transaction, portfolio, and enterprise levels. Approaches used to identify risk include workshops, interviews, process analysis, key risk indicators, risk assessment and data analysis. Identified risks are assessed based on qualitative and quantitative factors to understand the likelihood that such events will occur and the degree to which they will impact Webster’s ability to achieve its strategic and business objectives if they occur. Risk assessments, which are performed by the first or second line of defense functions, evaluate inherent risk (likelihood and impact) and existing controls (control environment) to arrive at residual risk.

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Webster’s risk appetite statement provides guidance to management regarding the nature and level of residual risk that Webster is willing to take in pursuit of its objectives. The appetite balances a qualitative risk appetite statement, which is approved annually by the Board of Directors, with quantitative metrics in the form of corporate-level and business-level scorecards comprising key risk indicators with established risk tolerance levels. Tolerance levels are periodically reviewed by the respective oversight committees to ensure the alignment of risk appetite with Webster’s risk profile.

Webster has established operating and oversight structures including policies, processes, people, and control/oversight systems that support risk-related decision making designed to ensure appropriate authority, accountability, independence, and clarity of roles and responsibilities. The Board of Directors oversees Webster's ERM approach to risk management and delegates its authority to Webster's Risk Committee to provide oversight and effective challenge. Along with assisting the Board of Directors in fulfilling its oversight responsibilities regarding Webster's ERM program, the Risk Committee, which is comprised of at least three independent Directors, is responsible for reviewing information regarding Webster's policies, procedures, and practices relating to risk. The Chief Risk Officer has the primary responsibility for the design and implementation of Webster's risk management framework.

The Enterprise Risk Management Committee (ERMC), which is chaired by the Chief Risk Officer, is the management committee responsible for overseeing Webster's risk management process, including monitoring the severity, direction, and trend of risks relative to business strategies and market conditions, assessing management’s ability to manage and mitigate risks, and ensuring implementation of Webster's risk appetite and strategy. It also directly oversees strategic risk and reputational risk, and reviews identified emerging risks to Webster. The ERMC has six subcommittees: (i) the Operational Risk Management Committee, (ii) the Credit Risk Management Committee, (iii) the Asset Liability Committee, (iv) the Information Risk Committee, (v) the Regulatory Oversight Committee, and (vii) the Litigation Risk Management Committee. The ERMC subcommittees aggregate and report risk information using established taxonomies and rating methodologies, which categorize risk data based on shared characteristics in order to assess risks on a common scale, and regularly report and submit their findings to the ERMC and the Risk Committee of the Board of Directors.

Strategic Risk

Strategic risk is comprised of (i) strategic development risk, or the inability to define the vision, understand the environment, or formulate a strategy, as well as the types and amount of risk inherent in carrying out the strategy and achieving the desired business objectives, and (ii) strategic execution risk, or the inability to translate strategy from theoretical into action from the failure to allocate resources to sustain the strategy and/or the failure to adapt to changes. Webster maintains an active strategic planning process that is long-term oriented and continuously refined to respond to changes in the operating environment. ERM and the line of business risk managers, in consultation with the respective executives, perform an annual long range plan assessment of Webster's strategic choices and initiatives in order to understand and communicate to the Board of Directors the impact on Webster's risk profile from management's execution of the long range plan. Webster's long-range plan, which is developed by the Operating Management Committee to align with Webster's risk appetite, capital and liquidity requirements, is subject to annual review and approval by the Board of Directors, as well as significant strategic actions, such as mergers and acquisitions or key strategic partnerships, as they arise.

Financial Risk

Financial risk is comprised of (i) accounting risk, or the risk that arises from the inability to maintain a high integrity financial reporting process, ensure compliance with U.S. Generally Accepted Accounting Principles (GAAP) and regulatory guidelines, disclosure of appropriate information, and align financial goals with tax efficiency planning, and (ii) treasury risk, or the risk of capital levels falling below supervisory expectations, that interest rate changes could contribute to a reduction in earnings or net worth, and decreases or changes in funding sources impacting the ability to efficiently liquidate assets. While we recognize that we cannot control or predict external factors that may affect Webster's financial resources, management can make prudent decisions to mitigate the financial impact. Webster's accounting and interest rate, capital, and liquidity financial risk programs are respectively managed by the Chief Accounting Officer and Treasurer.

The Asset Liability Committee (ALCO), a subcommittee of ERMC, is responsible for the oversight, management, and strategic direction of interest rate risk, liquidity, capital, balance sheet composition (in conjunction with the Credit Risk Management Committee), and pricing. The Treasurer serves as the chair of ALCO, or the Asset/Liability Management Manager in the absence of the Treasurer. Other members include the Chief Executive Officer, Chief Financial Officer, Chief Risk Officer, Director of Financial Planning and Analysis, Wholesale Bank Manager, Funding Manager, and the Head of Commercial Bank.

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Information Risk

Information risk is comprised of (i) information security risk, or the risk of unauthorized access, use, disclosure, disruption, modification, perusal, inspection, recording, or destruction of electronic or physical data, and (ii) informational technology risk, or the risk that systems handing information and process flows may not meet quality and efficiency standards in line with industry, customer, and regulatory expectations, or may fail causing outages, or that new systems may not be implemented in a timely manner. The increased use of technology to store and process information, particularly the ability to conduct financial transactions on mobile devices and cloud technologies, exposes Webster to moderate risk of potential operational disruption or information security incidents, whether caused by deliberate or accidental acts. Webster is committed to preventing, detecting, and responding timely to incidents that may impact the confidentiality, integrity, and availability of information assets through its robust information security and technology risk programs, which are managed under the direction of the Chief Information Security Officer and Director of CIO Governance.

The Information Risk Committee, a subcommittee of ERMC, is responsible for overseeing information technology and security risk, including technology risk and cybersecurity, and for reviewing the development, implementation, and maintenance of Webster’s Information Security Program and its related comprehensive set of technology policies, which align with regulatory guidance and industry standards. The Director of Information Technology serves as the chair of the Information Risk Committee, and its members include the Chief Information Officer, Chief Risk Officer, and Chief Information Security Officer.

Credit Risk

Credit risk is defined as the risk of customer or counterparty default due to their lack of willingness or ability to meet financial obligations. Sources of credit risk could include concentrations, deal structure, asset quality, and collateral values. Webster mitigates credit risk within its loan, investment, and derivative portfolios through established credit policies, underwriting guidelines, portfolio management, and troubled asset monitoring tools in order to limit its exposure to default. Credit approval and reporting requirements are also implemented to ensure proper risk identification, decision rationale, risk ratings, and disclosure of policy exceptions. The credit risk management program is led by the Chief Credit Officer along with a team of credit executives who are independent of the loan production and treasury functions.

The Credit Risk Management Committee, a subcommittee of the ERMC, is responsible for oversight and management of credit risk across the organization at Webster. It qualitatively and quantitatively assesses credit risk and provides a point of view regarding the overall risk profile and asset mix of the portfolio to support strategic decision making. It also shares credit risk information as it relates to business line strategy, policy, practices, and controls. The Chief Credit Officer serves as the chair of the Credit Risk Management Committee, and its members include both risk and line of business representatives.

Operational and Compliance Risks

Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, and systems or external events. At Webster, the category of operational risk includes third party, business operations (process), fraud, human capital, model, and physical security. The operational risk management program is predominantly focused on developing and implementing tools for assessing business operations risk (process design, execution, and documentation). Other operational risks associated with people, systems, and external events are managed through a combination of first and second line defense programs under the supervision of the Chief Financial Officer, Chief Information Officer, Chief Human Resources Officer, and Chief Risk Officer. The Operational Risk Management Committee, a subcommittee of the ERMC, oversees and provides credible challenge on operational risks facing the organization, along with mitigation programs and strategies for these risks. In addition, the Operational Risk Management Committee establishes tolerance levels for the most significant operational risks and monitors performance against them. The Director of Enterprise and Operational Risk Management and the Senior Operational Risk Manager serve as co-chairs of the Operational Risk Management Committee, and its members include representatives from the corporate functions and lines of business.

Compliance risk is defined as the risk of non-compliance with banking laws and regulations, including new regulations and changes to existing regulations, and the associated harm to consumers and customers. The Regulatory Oversight Committee, a subcommittee of the ERMC, is responsible for overseeing Webster's compliance with applicable laws and regulations, including but not limited to, anti-money laundering, fair and responsible banking, lending, privacy, deposit, and investments. The Director of Corporate Compliance serves has the chair of the Regulatory Oversight Committee, and its members include representatives from the Chief Risk Officer group, legal department, and lines of business.

Legal and Reputational Risks

Legal risk is defined as the financial or reputational exposure resulting from either bank-initiated or third-party initiated litigation (whether due to civil or criminal liability, or regulatory action) and the risk that Webster's governance structure is inadequate to facilitate Board oversight of company activities to ensure alignment with regulatory guidelines and stakeholder expectations. Reputational risk is defined as the risk that Webster loses customers, employees, or business partners due to negative public and/or market perception or improper business practices, and the ability to effectively compete.

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The Litigation Risk Management Committee, a subcommittee of the ERMC, oversees Webster's litigation risk management. The primary responsibility of the Litigation Risk Management Committee is to collect and review information on all pending litigation deemed to present material risk to Webster as a whole or any of its constituent entities. Other responsibilities include reviewing and making recommendations regarding the litigation related standards and procedures at Webster to ensure such do not increase the magnitude for likelihood of litigation risk, as well as identifying, monitoring, and reporting on emerging trends in litigation and developments in the law relating to Webster's conduct of business. General Counsel serves as the chair of the Litigation Risk Management Committee, and its members include the Chief Risk Officer, Chief Accounting Officer or Controller, and Chief Financial Officer.

Additional information regarding risks and uncertainties, along with relevant risk factors that could impact Webster's business, results of operations, or financial condition can be found in Part I - Item 1A. Risk Factors and throughout Part II of this report.

LIBOR Transition

Webster established a LIBOR transition plan in 2019 commensurate with identified LIBOR transition risks and exposures, which is aligned with regulatory guidance and ARRC best practices. Management continues to execute according to its LIBOR transition plan, addressing emerging issues and risks as they arise, while closely monitoring legislative and regulatory guidance associated with the LIBOR transition.

Accordingly, Webster has set up a governance structure to ensure risks and issues are appropriately discussed and resolved. This involves a senior management level working group, an executive management level Steering Committee, and regular updates to the Risk Committee of the Board of Directors. The working group, along with a transition and project manager, direct the execution of the transition activities on a day-to-day basis. Webster has also engaged an external advisor to assist.

Webster has adopted the SOFR rate and related conventions associated with the product line as the LIBOR replacement index and ARRC recommended fallback language for impacted contracts, as well as the recommended spread adjustments for legacy loans and/or derivative products. The Bank continues to work with applicable vendors to ensure the impacted loan, security, and derivative applications are updated to support the processing of SOFR-based products and related conventions over a timeline consistent with regulatory guidance and Webster’s transition plan. The Bank began offering SOFR-based loans and derivatives to its customers in October 2021. As of January 1, 2022, Webster no longer originates new contracts using any LIBOR index, as defined by regulatory guidance.

Available Information

Webster files reports with the SEC, and makes available, free of charge, on its internet website (www.wbst.com) its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC. The SEC also maintains an internet website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Information contained on Webster's website is not incorporated by reference into this report.

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ITEM 1A. RISK FACTORS

Investment in Webster's securities involves risks and uncertainties, some of which are inherent in the financial services industry and others of which are more specific to our business. The discussion below addresses the material risks and uncertainties, of which we are currently aware, that could adversely affect our business, results of operations, or financial condition. Before making an investment decision, you should carefully consider the risks and uncertainties together with all of the other information included or incorporated by reference in this report. If any of these events or circumstances actually occurs, our business, results of operations, or financial condition could be significantly impacted.

Strategic Risk

We may encounter significant difficulties in integrating with Sterling and may fail to realize the anticipated benefits of the merger, or those benefits may take longer to realize than expected.

Although Webster consummated its merger with Sterling on January 31, 2022, we expect integration of systems, operations, and personnel to continue over the next several years. The successful integration of Webster and Sterling will depend, in part, on our ability to combine and manage the businesses of Webster and Sterling in a manner that permits growth opportunities, including enhanced revenues and revenue synergies, operating efficiencies, an expanded market reach, and that does not materially disrupt the existing customer relationships of Webster or Sterling nor could result in decreased revenues due to loss of customers. If we are not able to successfully achieve these objectives, the anticipated benefits of the merger may not be fully realized or at all, or may take longer to realize than expected.

Failure to achieve these anticipated benefits could also result in increased costs, decreases in the amount of expected revenues, and diversion of management’s time and energy, and could have an adverse effect on the combined company’s business, financial condition, results of operations, and prospects. In addition, it is possible that the integration process could result in the disruption of our ongoing business or cause inconsistencies in standards, controls, procedures, and policies that adversely affect our ability to maintain relationships with customers and employees or to achieve the anticipated benefits of the merger.

We will continue to incur substantial expenses related to the merger and integration with Sterling.

Webster has incurred and will continue to incur significant, nonrecurring costs in connection with its merger with Sterling, as there are a large number of processes, policies, procedures, operations, technologies, and systems that need to be integrated. In addition, the merger may increase the Company's compliance and legal risks, including increased litigation or regulatory actions such as fines or restrictions, related to business practices or operations of the combined business.

While the Company has planned that a certain level of expenses will be incurred, there are many factors beyond Webster’s control that could affect the total amount or timing of integration expenses. Further, many of the expenses that will be incurred are, by nature, difficult to estimate accurately and could, particularly in the near term, exceed the anticipated cost savings that Webster expects to achieve. Overall, the amount and timing of future charges to earnings as a result of the merger and integration are uncertain, and there is no assurance that the expected benefits realized will offset the transaction costs over time.

New lines of business or new products and services may subject us to additional risk.

On occasion, we may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where markets are not fully developed. In developing and marketing new lines of business and/or new products and services, we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences may also impact the successful implementation of a new line of business and/or a new product or service. Further, any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business and/or new products or services could have a material adverse effect on our business, results of operations, and financial condition.

We may not be able to attract and retain skilled people and loss of key employees may disrupt relationships with customers.

Our success depends, in large part, on our ability to attract and retain skilled people. Competition for the best people in most activities in which we engage can be intense, and we may not be able to hire sufficiently skilled people or retain them. In addition, the transition to an increased remote work environment, which we believe is likely to survive the COVID-19 pandemic for many organizations, may exacerbate the challenges of attracting and retaining skilled employees as job markets may be less constrained by physical geography. The unexpected loss of services of our key personnel could have a material adverse impact on the business because of their skills, knowledge of our markets, years of industry experience, and the difficulty of promptly finding qualified replacement personnel.

Further, our business is primarily relationship-driven, in that many of our key employees have extensive customer relationships. The loss of a key employee with such customer relationships may lead to the loss of business if the customers were to follow that employee to a competitor or otherwise choose to transition to another financial services provider. While we believe that our relationships with key personnel is good, we cannot guarantee that all of our key personnel will remain with our organization.

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We operate in a highly competitive industry and market area.

We face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond our financial markets, many of which are larger and may have more financial resources than we do. Such competitors primarily include national, regional, community, and internet banks within the various markets in which we operate. We also face competition from many other types of financial institutions, including savings and loans, credit unions, non-bank health savings account trustees, finance companies, brokerage firms, insurance companies, online lenders, factoring companies, and other financial intermediaries. Some of these organizations are not subject to the same degree of regulation as is imposed on bank holding companies and federally insured depository institutions, which may give them greater flexibility in accessing funding and providing various services. Other organizations are larger than we are and may be able to achieve greater economies of scale or offer a broader range of products and services, or better pricing on products and services, than we can offer.

The financial services industry could become even more competitive as a result of legislative and regulatory changes, and continued consolidation. In addition, as customer preferences and expectations continue to evolve, technology has lowered barriers to entry and has made it possible for non-banks to offer products and services traditionally provided by banks. The financial services industry also faces increasing competitive pressure from the introduction of disruptive new technologies, such as blockchain and digital payments, often by non-traditional competitors and financial technology companies. Among other things, technology and other changes are allowing customers to complete financial transactions that historically have involved banks at one or both ends of the transaction.

Our ability to compete successfully depends on a number of factors, including, among other things:

•the ability to develop, maintain, and build upon long-term customer relationships based on top quality service, high ethical standards, and safe, sound assets;

•the ability to expand our market position;

•the scope, relevance, and pricing of products and services offered to meet customer needs and demands;

•the rate at which we introduce new products and services relative to our competitors;

•customer satisfaction with our level of service and products; and

•industry and general economic trends.

Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, and in turn, could have a material adverse effect on our financial condition and results of operations.

Failure to keep pace with and adapt to technological change could adversely impact our business.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. These new technologies may be superior to, or render obsolete, the technologies currently used in our products and services. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors, because of their larger size and available capital, have substantially greater resources to invest in technological improvements. Developing or acquiring new technologies and incorporating them into our products and services may require significant investment, take considerable time, and ultimately may not be successful. We cannot predict which technological developments or innovations will become widely adopted or how those technologies may be regulated. We also may not be able to effectively market new technology-driven products and services to our customers. Failure to successfully keep pace with and adapt to technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.

The loss of key partnerships could adversely affect our HSA Bank division.

Our HSA Bank division relies on partnerships with various health insurance carriers and other partners to maximize our distribution model. In particular, health plan partners who provide high deductible health plan options are a significant source of new and existing HSA holders. If these health plan partners or other partners choose to align with our competitors or develop their own solutions, our business, financial condition, and results of operations could be adversely affected.

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Financial Risk

Difficult conditions in the U.S economy and financial markets may have a materially adverse effect on our business, financial condition, and results of operations.

Our business and financial performance is highly dependent upon the U.S. economy and strength of its financial markets. Difficult economic and market conditions could adversely affect our business, results of operations, and financial condition. In particular, we could face some of the following risks, and other unforeseeable risks, in connection with a downturn in the U.S. economic and market environment:

•loss of confidence in the financial services industry and the debt and equity markets by investors, placing pressure on Webster’s common share price;

•decreased consumer and business confidence levels may decrease credit usage and investment or increase in delinquencies and default rates;

•decreased household or corporate incomes, which could reduce demand for our products and services;

•decreased value of collateral securing loans to borrowers, causing a decrease in the asset quality of our loan and lease portfolio and/or an increase in charge-offs;

•decreased confidence in the creditworthiness of the U.S. government and agency securities that we hold;

•increased concern over and scrutiny of capital and liquidity levels;

•increased competition or consolidation in the financial services industry; and

•increased limitations on or potential additional regulation of financial service companies.

The U.S. business environment and financial markets have experienced volatility in recent years and may continue to do so in the foreseeable future. The prolonged low-interest rate environment resulting from the COVID-19 pandemic, despite a recovering economy, has presented a challenge for the financial services industry. There can be no assurance that economic conditions will return to pre-pandemic levels or will not further worsen.

Our profitability depends significantly on local economic conditions in the states in which we conduct business.

The success of our business depends on the general economic conditions of the significant markets in which we operate, particularly Connecticut, Massachusetts, Rhode Island, New York, and New Jersey. Difficult economic conditions or adverse changes in such local markets, whether caused by inflation, recession, unemployment, changes in housing or securities markets, or other factors, could reduce demand for our loans and deposits, increase problem loans and charge-offs, cause a decline in the value of collateral securing loans, and otherwise negatively affect our performance and financial condition.

Changes in interest rates and spreads may have a materially adverse effect on our business, financial condition, and results of operations.

Our financial condition and results of operations are significantly affected by changes in market interest rates. To a large degree, our consolidated earnings are dependent on net interest income, which is the difference between the interest income earned from our interest-earning assets and the interest expense paid on our interest-bearing liabilities. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions, the competitive environment within our markets, consumer preferences for specific loan and deposit products, and policies of various governmental and regulatory agencies, in particular the FRB. Changes in monetary policy, including changes in interest rates, could influence the amount of interest we receive on loans and securities, the amount of interest we pay on deposits and borrowings, our ability to originate loans and obtain deposits, and the fair market value of our financial assets and liabilities.

Increased interest rates may decrease demand for interest-rate based products and services, including loans and deposits, and may it more difficult for borrowers to meet obligations under variable or adjustable-rate loans and other debt instruments. Decreased interest rates often result in increased prepayments on loans and securities, as borrowers refinance their loans to reduce borrowing costs. Under these circumstances, we are further subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments that have interest rates comparable to pre-existing loans and securities. Moreover, if the rates paid on interest-bearing liabilities increase at a faster rate than the yields received on interest-earning assets, our net interest income, and therefore earnings, could be adversely affected. Conversely, earnings could also be adversely affected if the yields received on interest-earning assets fall more quickly than the rates paid on interest-bearing liabilities.

Although management believes that it has designed and implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, an unexpected or prolonged period of interest rate changes could have a material adverse effect on our financial condition and results of operations. Further, our interest rate modeling techniques and assumption may not fully predict or capture the impact of actual interest rate changes on net interest income.

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We may be subject to more stringent capital and liquidity requirements, which could limit our business activities.

The Holding Company and Webster Bank are subject to capital and liquidity requirements and standards imposed as a result of the Dodd-Frank Act (as amended by EGRRCPA) and the U.S. Basel III Capital Rules. Regulators have and may implement changes to these standards. If we fail to meet the minimum capital adequacy and liquidity guidelines and other requirements, our business activities, including lending and our ability to expand, either organically or through acquisitions, could be limited. It could also result in us being required to take steps to increase our regulatory capital that may be dilutive to shareholders or limit our ability to pay dividends, or sell or refrain from acquiring assets.

The Holding Company may not pay dividends to shareholders if it is not able to receive dividends from its subsidiary, Webster Bank.

The Holding Company is a separate and distinct legal entity from our banking and non-banking subsidiaries. A substantial portion of the Holding Company’s revenues comes from dividends paid by Webster Bank. These dividends are the principal source of funds to pay dividends to common and preferred shareholders. Whether the Bank is able to pay dividends depends on its ability to generate sufficient net income and meet certain regulatory requirements, and the amount of such dividends may then be limited by federal and state laws. In the event the Bank is unable to pay the Holding Company dividends, we may not be able to pay dividends to our common and preferred shareholders.

Changes in our accounting policies or in accounting standards could materially impact how we report our financial results.

Our accounting policies and methods are fundamental to understanding how we record and report our results of operations and financial condition. Accordingly, we exercise judgment in selecting and applying these accounting policies and methods so they comply with GAAP. The Financial Accounting Standards Board (FASB), SEC, and other regulatory bodies that establish accounting standards periodically change the financial accounting and reporting standards, or the interpretation of those standards, that govern the preparation of our financial statements. These changes are beyond our control, can be hard to predict, and could materially impact how we report our results of operations and financial condition. We could be required to apply a new or revised standard retrospectively, which may result in us having to restate our prior period financial statements by material amounts.

The preparation of our consolidated financial statements requires the use of estimates that may vary from actual results.

The preparation of our consolidated financial statements in conformity with GAAP requires management to make difficult, subjective, or complex judgments about matters that are uncertain, which include assumptions and estimates of current risks and future trends, all of which may undergo material changes. Materially different amounts could be reported under different conditions or using different assumptions and estimates. Because of the inherent uncertainty of estimates involved in preparing our financial statements, we may be required to significantly adjust the financial statements as actual events unfold, which could have a material adverse effect on our financial condition and results of operations. In particular, we could be required to take actions that include, but are not limited to, increasing the ACL and/or sustaining credit losses that are significantly higher than the provided allowance, increasing the valuation allowance on our DTAs should new negative evidence become available indicating that it is more likely than not that some or a portion of our net DTA will not be realized, or recognizing a significant impairment charge for assets.

A significant merger or acquisition requires us to make estimates, including the fair values of acquired assets and liabilities.

GAAP requires us to record the assets and liabilities of an acquired business to their fair values at the time of the acquisition. With larger transactions, such as our recent merger with Sterling, fair value and other estimations can take up to four quarters to finalize. These estimates, and their revisions, can have a substantial effect on the presentation of our financial condition and operating results after the transaction closes. In addition, the excess of the purchase price over the fair value of the assets acquired, net of liabilities assumed, is recorded as goodwill. If the estimates that we have used at any financial statement date are significantly revised in the future, there could be a material negative impact on our goodwill or other acquisition-related intangibles and our results of operations for the period in which the revisions are made.

If our goodwill were determined to be impaired, it could have a negative impact on our profitability.

GAAP requires that goodwill be tested for impairment at the reporting unit level on at least an annual basis or more frequently should a triggering event occur. An impairment loss is to be recognized if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit. A significant decline in our expected future cash flows, a continued period of local and national economic disruption, changes to financial markets, slower growth rates, or other external factors, all of which can be highly unpredictable, may impact fair value calculations and require us to recognize an impairment loss in the future. Such impairment loss may be significant and have a material adverse effect on our financial condition and results of operations.

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Our investments in certain tax-advantaged projects may not generate returns as anticipated or at all, and may have an adverse impact on our results of operations.

We invest in certain tax-advantaged investments that support qualified affordable housing projects and other community development initiatives. Our investments in these projects rely on the ability of the projects to generate a return primarily through the realization of federal and state income tax credits and other tax benefits. We face the risk that tax credits, which remain subject to recapture by taxing authorities based on compliance with relevant requirements at the project level, may not be able to be realized. The risk of not being able to realize the tax credits and other tax benefits associated with a particular project depends on many factors that are outside our control. A project’s failure to realize these tax credits and other tax benefits may have a negative impact on our investment, and as a result, on our financial condition and results of operations.

Information Risk

A failure or breach of our information systems, or those of our third-party vendors and service providers, including as a result of cyber-attacks, could disrupt our businesses, result in the misuse of confidential or proprietary information, damage our reputation, and cause losses.

As a financial institution, we depend on our ability to process, record, and monitor a large number of customer transactions. Accordingly, our operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions, and breakdowns. Our business, financial, accounting, data processing systems, or other operating systems and facilities, including mobile banking and other recently developed technologies, may stop operating properly or become disabled or compromised as a result of a number of factors that may be beyond our control. For example, there could be sudden increases in customer transaction volume, electrical or telecommunications outages, natural disasters, pandemics, events arising from political or social matters, including terrorist acts, and cyber-attacks. Although we have business continuity plans and robust information security procedures and controls in place, disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers or cyber-attacks or security breaches of the networks, systems, or devices on which customers’ personal information is stored and that they use to access our products and services, could result in customer attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, which could have a materially adverse effect on our results of operations and financial condition.

Additionally, third parties with whom we do business or that facilitate our business activities, including exchanges, clearing houses, financial intermediaries, or vendors that provide services or security solutions for our operations, could also be sources of operational and information security risk to us, including breakdowns or failures of their own systems, capacity constraints, and cyber-attacks.

In recent years, information security risks for financial institutions have risen due to the increased sophistication and activities of organized crime, hackers, terrorists, hostile foreign governments, activists, and other external parties. There have been instances involving financial services and consumer-based companies reporting unauthorized access to, and disclosure of, client or customer information or the destruction or theft of corporate data. There have also been highly publicized cases where hackers have requested ransom-payments in exchange for allowing access to systems and/or not disclosing customer information. In addition, as a result of the COVID-19 pandemic and the related increase in remote working by our personnel and the personnel of other companies, the risk of cyber-attacks, breaches or similar events, whether through our systems or those of third parties on which we rely, has increased.

Although Webster has not experienced any material losses relating to cyber-attacks or other information security breaches, there can be no assurance that we will not suffer such losses in the future. Our inherent risk and exposure to these matters remains heightened, and as a result, the continued development and enhancement of our controls, processes, and practices designed to protect and facilitate the recovery of our systems, computers, software, data, and networks from attack, damage, or unauthorized access remains a high priority for us. While we have purchased network and privacy liability insurance coverage (which includes digital asset loss, business interruption loss, network security liability, privacy liability, network extortion, and data breach coverage), there can be no assurance that such insurance will cover any and all actual losses. As cyber threats and related regulations continue to evolve, we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate any information security vulnerabilities.

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Credit Risk

Our allowance for credit losses on loans and leases may be insufficient.

We maintain an ACL on loans and leases, which is a reserve established through a provision for credit losses charged to expense, that represents management’s best estimate of probable credit losses over the life of the loan or lease within our existing portfolio. The determination of the appropriate level of ACL on loans and leases inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and trends using existing qualitative and quantitative information and reasonable supportable forecasts of future economic conditions, all of which may undergo frequent and material changes. Changes in economic conditions affecting borrowers, the softening of macroeconomic variables that we are more susceptible to, along with new information regarding existing loans, identification of additional problems loans, and other factors, both within and outside our control, may indicate the need for an increase in the ACL on loans and leases.

Bank regulatory agencies also periodically review our ACL and may require an increase in the provision for credit losses or the recognition of additional loan charge-offs, based on judgments different than those of management. In addition, if charge-offs in future periods exceed the ACL, we may need, depending on an analysis of the adequacy of the ACL, additional provisions to increase the ACL. An increase in the ACL would result in a decrease in net income, and could have a material adverse effect on our financial condition, results of operations, and regulatory capital position.

The soundness of other financial institutions could adversely affect our business.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. As a result, defaults by, or even rumors or questions about one or more financial services companies, or the financial services industry in general, have led, and may further lead to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions could expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be impacted if the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the financial instrument’s exposure due to us. There is no assurance that any such losses would not materially or adversely affect our business, financial condition, or results of operations.

We are subject to the risk of default by our counterparties and clients, particularly with respect to certain types of loans.

Many of our routine transactions expose us to credit risk in the event of default of our counterparties or clients. Our credit risk may be exacerbated when the collateral held cannot be realized or is liquidated at prices insufficient to cover the full amount of the loan or derivative exposure to us. In deciding whether to extend credit or enter into other transactions, we may rely on information furnished by or on behalf of counterparties and clients, including financial statements, credit reports, and other information. We may also rely on representations of those counterparties, clients, or other third parties, such as independent auditors, as to the accuracy and completeness of that information. The inaccuracy of that information or those representation affects our ability to accurately evaluate the default risk of a counterparty or client and could cause us to enter into unfavorable transactions, which could have a material adverse effect on our financial condition and results of operations.

In addition, we consider our commercial real estate loans and commercial and industrial loans to be higher risk categories in our loan portfolio because these loans are particularly sensitive to economic conditions. Commercial real estate loans generally have large balances and can be significantly affected by adverse conditions in the economy that are outside of the borrower’s control because payments on such loans typically depend on the successful operation and management of the businesses that hold the loans. In the case of commercial and industrial loans, related collateral often consists of accounts receivable, inventory, and equipment. This type of collateral typically does not yield substantial recovery in the event of foreclosure and may rapidly deteriorate, disappear, or be misdirected in advance of foreclosure. In addition, many of our commercial real estate and commercial and industrial borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship may expose us to significantly greater risk of loss. The risks associated with these types of loans could have a significant negative affect on our earnings in any quarter.

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Operational and Compliance Risk

We are subject to extensive government regulation and supervision, which may interfere with our ability to conduct our business operations.

We are subject to extensive federal and applicable state regulation and supervision, primarily through Webster Bank and certain non-bank subsidiaries. Banking regulations are primarily intended to protect depositors, the Federal Deposit Insurance Fund, and the safety and soundness of the U.S banking system as a whole, not shareholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy, and growth, among other things. Congress and federal regulatory agencies continuously review banking laws, regulations, and policies for possible changes, and proposed changes are to be expected from the current Administration. Changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation thereof, could affect us in substantial and unpredictable ways. For example, such changes could subject us to additional costs, limit the types of financial services and products we may offer, and restrict what we are able to charge for certain banking services. Failure to comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil penalties, and reputation damage, which could have a material adverse effect on our business, financial condition, and results of operations. While we have policies and procedures designed to prevent these types of violations, there can be no assurance that such violations will not occur.

We face risks related to the adoption of future legislation and potential changes in federal regulatory agency leadership, policies, and priorities.

Under the current Administration, financial institutions have recently become subject to increased scrutiny and therefore, it is expected that the baking sector will be subject to more extensive legal and regulatory requirements within the next few years than under the prior presidential and congressional regime. In addition, changes in key personnel at the regulatory agencies, including the federal banking regulators, may result in differing interpretations of existing rules and guidelines, including more stringent enforcement and more severe penalties than previously.

Climate change manifesting as physical or transition risks could adversely affect our operations, businesses, and customers.

There is an increasing concern over the risks of climate change and related environmental sustainability matters. The physical risks of climate change include discrete events, such as flooding and wildfires, and longer-term shifts in climate patterns, such as extreme heat, sea level rise, and more frequent and prolonged drought. Such events could disrupt our operations, those of our customers, or third parties on which we rely, including through direct damage to assets and indirect impacts from supply chain disruption and market volatility. In addition, transitioning to a low-carbon economy may entail extensive policy, legal, technological, and market initiatives. Transition risks, including changes in consumer preferences and additional regulatory requirements or taxes, could increase our expenses and undermine our strategies. Our reputation and client relationships may be damaged as a result of our practices related to climate change, including our involvement, or our customers' involvement, in certain industries or projects associated with causing or exacerbating climate change, as well as any decisions we make to conduct or change our activities in response to considerations relating to climate change. We have developed and continue to enhance processes to assess and monitor the Bank's exposure to climate. However, because the timing and impact of climate change has limited predictability, our risk management strategies may not be effective in mitigating climate risk exposure.

Changes in federal, state, or local tax laws may negatively impact our financial performance.

We are subject to changes in tax laws that could increase our effective tax rates or cause an increase or decrease in our income tax liabilities. These law changes may be retroactive to previous periods and as a result, could negatively impact our current and future financial performance. On September 13, 2021, the House Ways and Means Committee released their proposed tax reform legislation, which includes an increase in the federal corporate tax rate from 21% to 26.5% for corporations earning more than $5 million, and alters selected provisions of the Internal Revenue Code, among other changes. At this time, we are unable to predict whether this change or any other proposed tax law will ultimately be enacted.

We are subject to examinations and challenges by taxing authorities.

We are subject to federal and applicable state and local income tax regulations. Income tax regulations are often complex and require interpretation. In the normal course of business, we are routinely subject to examinations and challenges from federal and applicable state and local taxing authorities regarding the amount of taxes due in connection with investments we have made and the businesses in which we have engaged. Recently, federal and state and local taxing authorities have been increasingly aggressive in challenging tax positions taken by financial institutions. These tax positions may relate to compliance, sales and use, franchise, gross receipts, payroll, property, and income tax issues such as tax base, apportionment, and tax credit planning. The challenges made by taxing authorities may result in adjustments to the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions. If any such challenges are made and are not resolved in our favor, they could have a material adverse effect on our financial condition and results of operations.

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Our internal controls may be ineffective, circumvented, or fail.

Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures, failure to implement any necessary improvement of controls and procedures, or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, and financial condition.

Our business may be adversely affected by fraud.

As a financial institution, we are inherently exposed to risk in the form of theft and other fraudulent activities by employees, customers, or other third parties targeting Webster or Webster’s customers or data. Such activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering, and other dishonest acts. Although we devote substantial resources to maintaining effective policies and internal controls to identify and prevent such incidents, given the increasing sophistication of possible perpetrators, we may experience financial losses or reputational harm as a result of fraud.

Health care reform could adversely affect our HSA Bank division.

The enactment of future health care reform affecting HSAs at the federal or state level may affect our HSA Bank division as a bank custodian of HSAs. We cannot predict if any such reforms will occur, ultimately become law, or if enacted, what the terms or regulations promulgated pursuant to such laws will be. Any health care reform enacted may be phased in over a number of years, but could, with respect to the operations of HSA Bank, reduce revenues, increase costs, and require us to revise the ways in which we conduct business or put us at risk for loss of business. In addition, our results of operations, financial position, and cash flows could be materially adversely affected by such changes.

We rely on third parties to perform significant operational services for us.

Third parties perform significant operational services on our behalf. For instance, we depend on our vendor-provided core banking processing systems to process a large number of increasingly complex transactions on a daily basis. Accordingly, we are exposed to the risk that vendors and third-party service providers might not perform in accordance with their contracts or service agreements, whether due to changes in their organizational structure, strategic focus, support for existing products, technology, services, financial condition, or for any other reason. Their failure to perform could be disruptive to our operations, which could have a materially adverse impact on our business, results of operations, and financial condition. Although we require third-party service providers to have business continuity and disaster recovery plans that are aligned with our plans, we cannot be assured that such plans will operate successfully or in a timely manner so as to prevent any such material adverse impact.

The replacement of LIBOR could adversely affect our business and financial condition.

LIBOR and certain other interest rate benchmarks are the subject of recent national, international, and other regulatory guidance and reform. On March 5, 2021, the United Kingdom administrator of LIBOR announced that the 1-month, 3-month, 6-month and 12-month USD LIBOR settings would cease to exist after June 30, 2023, and certain other LIBOR settings, including the 1-week and 2-month USD LIBOR settings, would cease to exist after December 31, 2021. Accordingly, all existing LIBOR obligations will transition to another benchmark after December 31, 2021, June 30, 2023, or earlier. The U.S. federal banking agencies issued a statement in November 2020 encouraging banks to transition away from USD LIBOR as soon as practicable and to stop entering into new contracts that use USD LIBOR by December 31, 2021.

Central banks and regulators in major jurisdictions including the United States have convened working groups to find, and implement the transition to suitable replacements for interbank offered rates. To identify a successor rate for USD LIBOR, the Board of Governors of the Federal Reserve Board and the FRB of New York formed the ARRC. On July 29, 2021, the ARRC formally recommended SOFR as its preferred alternative replacement rate for LIBOR. Webster has adopted SOFR as the LIBOR replacement rate and began offering SOFR-based lending solutions and derivative contracts to our customers in October 2021. As of January 1, 2022, Webster no longer originates new contracts using any LIBOR index, as defined by regulatory guidance.

The market transition away from LIBOR to alternative reference rates is complex and could have a range of adverse effects on our business, financial condition, and results of operations. In particular, the transition could:

•adversely affect the interest rates received or paid on the revenues and expenses associated with or the value of our LIBOR-based assets and liabilities, or the value of other securities or financial arrangements, given LIBOR's role in determining market interest rates globally;

•prompt inquiries or other actions from regulators in respect of our preparation and readiness for the replacement of LIBOR with SOFR as the alternative reference rate; and

•result in disputes, litigation or other actions with borrowers or counterparties about the interpretation and enforceability of certain fallback language in LIBOR-based contracts and securities.

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The transition away from LIBOR to SOFR will require the transition to or development of appropriate systems, models, and analytics to effectively transition our risk management and other processes from LIBOR-based products to those based on SOFR. Webster has developed a Working Group, Steering Committee, and LIBOR transition plan aligned with regulatory guidance and ARRC best practices and is actively working to develop processes, systems, and personnel to support this transition. Timelines and priorities include assessing the impact on our customers, as well as assessing system requirements for operational processes. There can be no guarantee that our efforts will successfully mitigate the operational risks associated with the transition away from LIBOR to SOFR as the alternative reference rate. The effect of these developments on our funding costs, loan, investment, and securities portfolios is uncertain and could adversely impact our business and increase operational and legal costs.

Legal and Reputational Risk

We are subject to financial and reputational risks from potential liability arising from lawsuits.

The nature of our business ordinarily results in certain legal proceedings and claims. Whether claims or legal actions are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect how the market perceives us, the products and services we offer, as well as customer demand for those products and services. Any financial liability or reputation damage could have a material adverse effect on our business, which in turn, could have a material adverse effect on our financial condition and results of operations.

We assess our liabilities and contingencies in connection with outstanding legal proceedings and certain threatened claims and assessments using the latest and most reliable information. For matters identified where it is probable that we will incur a loss and the amount can be reasonably estimated, we will establish an accrual for the loss. Once established, the accrual is then adjusted, as needed, to reflect any relevant developments. However, the actual cost of an outstanding legal proceeding or threatened claim and assessment, may turn out to be substantially higher than the amount accrued by management.

We are exposed to environmental liability risk with respect to properties to which we obtain title.

A significant portion of our loan portfolio is secured by real property. In the normal course of business, we may foreclose on and take title of properties securing certain loans, and there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be held liable for remediation costs, including significant investigation and clean-up costs and for personal injury or property damage. In addition, environmental contamination could materially reduce the affected property’s value or limit our ability to use or sell the affected property. Although we have policies and procedures to perform environmental reviews prior to lending against or initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. Further, if we are the owner or former owner of a contaminated site, we may be subject to common law claims based on damages and costs incurred by others due to environmental contamination emanating from the property. These remediation costs and liabilities could have a material adverse effect on our financial condition and results of operations.

General Risk Factors

Our stock price can be volatile.

Stock price volatility may make it more difficult for shareholders to resell their common stock when they want and at prices that they find attractive. Our stock price can fluctuate significantly in response to a variety of factors including, among other things:

•actual or anticipated variations in results of operations;

•recommendations or projections by securities analysts;

•operating and stock price performance of other companies that investors deem comparable to us;

•news reports relating to trends, concerns, and other issues in the financial services and healthcare industries;

•perceptions in the marketplace regarding us and/or our competitors;

•new technology used, or services offered, by competitors;

•significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving us or our competitors;

•changes in dividends and capital returns;

•issuance of additional shares of Webster common stock;

•changes in government regulations; and

•geopolitical conditions such as acts or threats of terrorism or military conflicts, including any military conflict between Russia and Ukraine.

General market fluctuations, including real or anticipated changes in the strength of the economy, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes, credit loss trends, among other factors, could also cause Webster's stock price to decrease regardless of operating results.

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The effects of COVID-19 have adversely impacted, and will likely continue to adversely impact, our financial condition and results of operations.

The COVID-19 pandemic has severely disrupted economic activity in the U.S. and continues to cause disruption both worldwide and in the markets in which we operate. The extent of these impacts will depend on future developments, including among others, governmental, regulatory, and private sector actions and responses, actions taken to contain or prevent further spread, the continued emergence of new and highly contagious variants of the virus, and the use and effectiveness of vaccines and other treatments, each of which cannot be predicted with certainty.

Our business is dependent upon the ability and willingness of our customers to conduct banking and other financial transactions, including the payment of loan obligations. COVID-19 has and continues to disrupt the business, activities, and operations of our customers, which may cause a decline in demand for our products and services which may, in turn, result in a significant decrease in our business, negatively impacting our liquidity position and financial results. Our financial results could also be adversely impacted due to an inability of our customers to meet their loan commitments because of their losses associated with the effects of COVID-19, resulting in increased risk of delinquencies, defaults, foreclosures, declining collateral values, and other losses. Moreover, current and future governmental action may temporarily require the Company to conduct business differently with respect to foreclosures, repossessions, payments, deferrals, and other customer-related transactions.

Further, we rely upon our third-party vendors to conduct business and to process, record, and monitor transactions. If any of these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our customers. While we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective. Our workforce also has been, is, and may continue to be impacted by COVID-19. We have taken precautions to protect the safety and well-being of our employees and customers, including temporary branch and office closures during the early phase of the pandemic, but no assurance can be given that our actions will be adequate or appropriate, nor can we predict the level of disruption which will occur to our employees’ ability to provide customer support and service in the future. The pandemic could also negatively impact availability of key personnel and employee productivity which could adversely impact our ability to deliver products and services to our customers. While most of our employees have returned to our offices, the increase in remote and work-at-home arrangements in our workforce has also resulted in heightened cybersecurity, information security, and operational risks.

It is possible that the pandemic and its aftermath will lead to a prolonged economic slowdown or recession in the U.S. economy or in our markets. The ultimate impacts of COVID-19 are uncertain and could have a material adverse effect on our business, financial condition, liquidity, and results of operations. Moreover, the effects of the COVID-19 pandemic may heighten the other risks described in this Annual Report on Form 10-K.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 2. PROPERTIES

Effective January 31, 2022, in connection with its merger with Sterling, Webster relocated its corporate headquarters from Waterbury to Stamford, Connecticut. This leased facility houses the Company’s primary executive and administrative functions, and serves as the principal banking headquarters of Webster Bank. Additional administrative functions are housed in owned facilities in Waterbury and New Britain, Connecticut, and in leased facilities in Southington, Connecticut, and Jericho, Pearl River, White Plains, and New York, New York. Webster considers its properties to be suitable and adequate for its current business needs.

Commercial Banking maintained offices across a geographic footprint that primarily ranged from Boston, Massachusetts, to Washington, D.C. at December 31, 2021. Significant properties were located in: Greenwich, Hartford, New Haven, New Milford, Southington, Stamford, and Waterbury, Connecticut; Boston, Massachusetts; Providence, Rhode Island; White Plains and New York, New York; Conshohocken, Pennsylvania; Baltimore, and Maryland.

HSA Bank is headquartered in Milwaukee, Wisconsin, with an office in Sheboygan, Wisconsin.

Retail Banking operated a distribution network that consisted of 130 banking centers at December 31, 2021:

Location	Leased	Owned	Total
Connecticut	62	34	96
Massachusetts	10	9	19
Rhode Island	5	3	8
New York	7	—	7
Total	84	46	130

During the year ended December 31, 2021, the Retail Banking segment consolidated 25 of its banking centers located across Connecticut, Massachusetts, and Rhode Island, and integrated these locations into others nearby within its network. This previously announced strategic action resulted from the Company’s increased focus on balancing physical locations and digital banking channels, driven by increased client usage of online and mobile banking.

Additional information regarding Webster's owned facilities and leased locations can be found within Note 7: Premises and Equipment and Note 8: Leasing in the Notes to the Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data, respectively.

ITEM 3. LEGAL PROCEEDINGS

Information regarding legal proceedings can be found within Note 23: Commitments and Contingencies in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data, which is incorporated herein by reference.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Webster Financial Corporation's common stock is traded on the NYSE under the symbol WBS. At February 18, 2022, there were 7,526 shareholders of record, as determined by Broadridge Corporate Issuer Solutions, Inc., Webster's transfer agent.

Information regarding dividend restrictions can be found under the section captioned "Supervision and Regulation" in Part I - Item 1. Business and within Note 15: Regulatory Capital and Restrictions in the Notes to the Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data, which are incorporated herein by reference.

Recent Sales of Unregistered Securities

There were no unregistered securities sold by Webster during the three year period ended December 31, 2021.

Issuer Purchases of Equity Securities

The following table provides information with respect to any purchase of equity securities for Webster Financial Corporation’s common stock made by or on behalf of Webster or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, during the three months ended December 31, 2021:

Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Amount Available for Repurchase Under the Plans or Programs (2)
October	313	$	56.27	—	$	123,443,785
November	915	58.27		—	123,443,785
December	767	54.35		—	123,443,785
Total	1,995	56.45		—	123,443,785

(1)The total number of shares purchased were acquired at market prices outside of the Company's repurchase program, and related to stock compensation plan activity.

(2)Webster maintains a common stock repurchase program, which was announced on October 29, 2019 and approved by the Board of Directors, that authorizes management to purchase up to $200.0 million of its common stock in either open market or privately negotiated transactions, subject to market conditions and other factors. Due to the effects of the COVID-19 pandemic on the economic environment, Webster had temporarily suspended repurchases of its common stock under the program in 2020. Further, pursuant to the Company's executed merger agreement with Sterling dated as of April 18, 2021, Webster was restricted from repurchasing any shares under the program through the close of the transaction. Now that the transaction has closed effective January 31, 2022, Webster has resumed its common stock repurchase program subject to prevailing market conditions.

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Performance Graph

The performance graph compares the yearly percentage change in Webster's cumulative total shareholder return on its common stock over the last five fiscal years to the cumulative total return of (i) the Standard & Poor’s 500 Index (S&P 500 Index) and (ii) the Keefe, Bruyette & Woods Regional Banking Index (KRX Index), assuming the reinvestment of dividends and an initial investment of $100 on December 31, 2016. The KRX Index is a market-capitalization weighted index comprised of 50 regional banks or thrifts located throughout the United States.

Cumulative total shareholder return is measured by dividing the sum of the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and the difference between the share price at the end and the beginning of the measurement period, by the share price at the beginning of the measurement period. The plotted points represent the cumulative total shareholder return on the last trading day of the fiscal year indicated. Historical performance shown on the graph is not necessarily indicative of future performance.

	Period Ending December 31,
	2016		2017		2018		2019		2020		2021
Webster Financial Corporation	$	100	$	106	$	95	$	105	$	88	$	120
S&P 500 Index	$	100	$	122	$	116	$	153	$	181	$	233
KRX Index	$	100	$	102	$	84	$	104	$	95	$	130

ITEM 6. [RESERVED]

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

This discussion and analysis provides information that management believes is necessary to understand the Company's financial condition, changes in financial condition, results of operations, and cash flows for the fiscal year ended December 31, 2021 as compared to 2020. The following information should be read in conjunction with Webster Financial Corporation's Consolidated Financial Statements and the accompanying Notes to the Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data of this Form 10-K, as well as other information set forth throughout this report. For discussion and analysis over the Company's 2020 results as compared to 2019, and other 2019 information, refer to Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on February 26, 2021.

Recent Developments

Mergers and Acquisitions

Effective January 31, 2022, Webster completed its previously announced merger with Sterling pursuant to an Agreement and Plan of Merger dated as of April 18, 2021. The total aggregate consideration payable in the merger was approximately 90 million shares of Webster common stock. Pursuant to the merger agreement, Sterling merged with and into Webster, with Webster continuing as the surviving corporation. Following the merger, on February 1, 2022, Sterling National Bank, a wholly-owned subsidiary of Sterling, merged with and into Webster Bank, with Webster Bank continuing as the surviving bank. Sterling was a full-service regional bank headquartered in Pearl River, New York, that primarily served the Greater New York metropolitan area. The merger expanded Webster's geographic footprint and combined two complementary organizations to create one of the largest commercial banks in the Northeastern U.S.

At the effective time of the merger, each share of Sterling common stock outstanding, other than certain shares held by Webster and Sterling, was converted into the right to receive a fixed 0.4630 share of Webster common stock. In addition, at the effective time of the merger, each outstanding share of Sterling 6.50% Series A Non-Cumulative Perpetual Preferred Stock was converted into the right to receive one share of newly created Webster 6.50% Series G Non-Cumulative Perpetual Preferred Stock, having substantially the same terms. At the close of the merger, Webster shareholders owned 50.4% of the combined company, and Sterling shareholders owned 49.6% of the combined company.

During the year ended December 31, 2021, Webster incurred merger-related expenses totaling $37.5 million, which consisted primarily of professional fees for investment banking, legal, and consulting, and employee severance and retention costs. The combined company has approximately $65 billion in assets, $44 billion in loans, and $53 billion in deposits based on balances at December 31, 2021 and operates 202 financial centers across the Northeast region.

In addition, on February 18, 2022, Webster acquired 100% of the equity interests of Bend Financial, Inc. (Bend), a cloud-based platform solution provider for HSAs, in exchange for cash. The acquisition accelerates Webster’s efforts underway to deliver enhanced user experiences at HSA Bank.

Additional information regarding Webster's mergers and acquisitions can be found within Note 3: Business Developments in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.

Strategic Initiatives

During the fourth quarter of 2020, the Company launched a strategic plan to drive incremental revenue and cost savings measures across the organization through the consolidation of banking centers and corporate facilities, process automation, ancillary spend reduction, and other organizational actions. At December 31, 2021, key project milestones have been completed, including the completion of all planned banking center closures, the delivery of a new digital onboarding platform for retail consumers, an investment in foundational technology modernization, and the realignment of certain business banking and investment service operations across the Company's reportable segments. These initiatives collectively contributed to the realization of operational efficiencies and ancillary spend reductions in 2021. As a result of Webster's merger with Sterling, various strategic initiatives were paused in 2021 but are expected to still be delivered throughout the merger integration period. In the second quarter of 2022, the Company plans to launch a new HSA Bank digital experience for employers, with consumers to follow thereafter.

During the year ended December 31, 2021, Webster incurred net strategic initiatives costs of $7.2 million, comprised of a net $4.8 million in professional and outside services, $3.5 million in occupancy, and $0.5 million in technology and equipment, partially offset by a net $1.6 million benefit in compensation and benefits. During the third quarter of 2021, the Company released $3.9 million from its previously recorded severance accrual, with a corresponding adjustment to earnings, as a result of changes in employee retention assumptions.

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Additional information regarding the financial statement impact of these strategic initiatives, as well as further details specific to the Company's segment changes, can be found in Part II within Note 3: Business Developments and Note 21: Segment Reporting, respectively, in the Notes to Consolidated Financial Statements contained in Item 8. Financial Statements and Supplementary Data, and the section captioned "Segment Reporting" contained elsewhere in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

COVID-19 Update

During 2021, the United States' economy began to recover from the COVID-19 pandemic, as the increased availability and distribution of COVID-19 vaccines allowed for the easing of restrictive measures that had previously been imposed by state and local governments. Despite these improvements, certain adverse effects of the COVID-19 pandemic may continue to impact the macroeconomic environment for some time, including labor shortages, disruptions to global supply chains, and rising inflationary pressures. These effects are anticipated to continue throughout 2022 but remain uncertain and difficult to predict, including any impact to Webster's business, liquidity, financial condition, and results of operations.

In 2020, the Federal Reserve reduced interest rates to near zero in response to the effects of the COVID-19 pandemic. However, in response to inflationary pressures, the FRB has announced that it will begin to taper its purchase of mortgage and other bonds. Webster expects interest rates to gradually and slowly rise over the course of the next year, but the timing and impact of the reversal in interest rate trends is unknown at this time.

Results of Operations

The following table summarizes selected financial highlights and key performance indicators:

	At or for the years ended December 31,
(In thousands, except per share and percentage data)	2021			2020			2019
Income and performance ratios:
Net income	$	408,864		$	220,621		$	382,723
Net income available to common shareholders	400,989			212,746			374,848
Earnings per diluted common share	4.42			2.35			4.06
Return on average assets	1.19		%	0.68		%	1.32		%
Return on average common tangible common shareholders' equity (non-GAAP)	15.35			8.66			16.01
Return on average common shareholders' equity	12.56			6.97			12.83
Non-interest income as a percentage of total revenue	26.41			24.24			23.00
Asset quality:
Allowance for credit losses on loans and leases	$	301,187		$	359,431		$	209,096
Non-performing assets	112,590			170,314			157,380
Allowance for credit losses on loans and leases / total loans and leases	1.35		%	1.66		%	1.04		%
Net charge-offs (recoveries) / average loans and leases	0.02			0.21			0.21
Nonperforming loans and leases / total loans and leases	0.49			0.78			0.75
Nonperforming assets / total loans and leases plus OREO	0.51			0.79			0.79
Allowance for credit losses on loans and leases / nonperforming loans and leases	274.36			213.94			138.56
Other ratios:
Tangible common equity (non-GAAP)	7.97			7.90			8.39
Tier 1 risk-based capital	12.32			11.99			12.22
Total risk-based capital	13.64			13.59			13.55
CET1 risk-based capital	11.72			11.35			11.56
Shareholders' equity / total assets	9.85			9.92			10.56
Net interest margin	2.84			3.00			3.55
Efficiency ratio (non-GAAP)	56.16			59.57			56.77
Equity and share related:
Common equity	$	3,293,288		$	3,089,588		$	3,062,733
Book value per common share	36.36			34.25			33.28
Tangible book value per common share (non-GAAP)	30.22			28.04			27.19
Common stock closing price	55.84			42.15			53.36
Dividends and equivalents declared per common share	1.60			1.60			1.53
Common shares issued and outstanding	90,584			90,199			92,027
Weighted-average common shares outstanding - basic	89,983			89,967			91,559
Weighted-average common shares outstanding - diluted	90,206			90,151			91,882

30

Non-GAAP Financial Measures

The non-GAAP financial measures identified in the preceding table provide both management and investors with information useful in understanding Webster's financial position, operating results, the strength of its capital position, and overall business performance. These measures are used by management for internal planning and forecasting purposes, as well as by securities analysts, investors, and other interested parties to assess peer company operating performance. Management believes this presentation, together with the accompanying reconciliations, provides a complete understanding of the factors and trends affecting the Company's business and allows investors to view its performance in a similar manner.

Tangible book value per common share represents shareholders’ equity less preferred stock and goodwill and other intangible assets divided by common shares outstanding at the end of the period. The tangible common equity ratio represents shareholders’ equity less preferred stock, goodwill, and other intangible assets, divided by total assets less goodwill and other intangible assets. Both of these measures are used by management to evaluate the strength of the Company's capital position. The return on average tangible common shareholders' equity is calculated using the Company's net income available to common shareholders, adjusted for the tax-effected amortization of intangible assets, as a percentage of average shareholders’ equity less average preferred stock, average goodwill, and average other intangible assets. This measure is used by management to assess Webster's performance against its peer financial institutions. The efficiency ratio, which represents the costs expended to generate a dollar of revenue, is calculated excluding certain non-operational items in order to measure how the Company is managing its recurring operating expenses.

These non-GAAP financial measures should not be considered a substitute for GAAP basis financial measures. Because non-GAAP financial measures are not standardized, it may not be possible to compare these with other companies that present financial measures having the same or similar names.

The following tables reconcile non-GAAP financial measures to the most comparable financial measures defined by GAAP:

	At December 31,
(Dollars and shares in thousands, except per share data)	2021			2020			2019
Tangible book value per common share:
Shareholders' equity	$	3,438,325		$	3,234,625		$	3,207,770
Less: Preferred stock	145,037			145,037			145,037
Goodwill and other intangible assets	556,242			560,756			560,290
Tangible common shareholders' equity	$	2,737,046		$	2,528,832		$	2,502,443
Common shares outstanding	90,584			90,199			92,027
Tangible book value per common share	$	30.22		$	28.04		$	27.19
Tangible common equity ratio:
Tangible common shareholders' equity	$	2,737,046		$	2,528,832		$	2,502,443
Total assets	$	34,915,599		$	32,590,690		$	30,389,344
Less: Goodwill and other intangible assets	556,242			560,756			560,290
Tangible assets	$	34,359,357		$	32,029,934		$	29,829,054
Tangible common equity ratio	7.97		%	7.90		%	8.39		%

	For the years ended December 31,
(Dollars in thousands)	2021			2020			2019
Return on average tangible common shareholders' equity:
Net income	$	408,864		$	220,621		$	382,723
Less: Preferred stock dividends	7,875			7,875			7,875
Add: Intangible assets amortization, tax-affected	3,565			3,286			3,039
Income adjusted for preferred stock dividends and intangible assets amortization	$	404,554		$	216,032		$	377,887
Average shareholders' equity	$	3,338,764		$	3,198,491		$	3,067,719
Less: Average preferred stock	145,037			145,037			145,037
Average goodwill and other intangible assets	558,462			560,226			562,188
Average tangible common shareholders' equity	$	2,635,265		$	2,493,228		$	2,360,494
Return on average tangible common shareholders' equity	15.35		%	8.66		%	16.01		%

31

	For the years ended December 31,
(Dollars in thousands)	2021			2020			2019
Efficiency ratio:
Non-interest expense	$	745,100		$	758,946		$	715,950
Less: Foreclosed property activity	(535)			(1,504)			(173)
Intangible assets amortization	4,513			4,160			3,847
Merger-related	37,454			—			—
Strategic initiatives	7,168			43,051			—
Other expense (1)	2,526			—			1,757
Non-interest expense	$	693,974		$	713,239		$	710,519
Net interest income	$	901,089		$	891,393		$	955,127
Add: Tax-equivalent adjustment	9,813			10,246			9,695
Non-interest income	323,372			285,277			285,315
Other income (2)	1,344			10,371			1,448
Less: Gain on sale of investment securities, net	—			8			29
Income	$	1,235,618		$	1,197,279		$	1,251,556
Efficiency ratio	56.16		%	59.57		%	56.77		%

(1)Other expense includes debt prepayments costs in 2021 and business and facility optimization charges in 2019.

(2)Other income includes low income housing tax credits for all periods presented and a $5.5 million discrete customer derivative fair value adjustment in 2020.

Net Interest Income

Net interest income is Webster's primary source of revenue, representing 73.6%, 75.8%, and 77.0% of total revenues for the years ended December 31, 2021, 2020, and 2019, respectively, and is the difference between interest income on interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund interest-earnings assets and other activities. Net interest margin is calculated as the ratio of tax-equivalent net interest income to average interest-earning assets. Tax-equivalent adjustments are determined assuming a statutory federal income tax rate of 21%.

Net interest income and net interest margin are influenced by the volume and mix of interest-earning assets and interest-bearing liabilities, changes in interest rate levels, re-pricing frequencies, contractual maturities, prepayment behavior, and the use of interest rate derivative financial instruments. These factors are affected by changes in economic conditions which, in turn, impacts monetary policies, competition for loans and deposits, as well as the extent of interest lost on non-performing assets.

Net interest income increased $9.7 million, or 1.1%, from $891.4 million for the year ended December 31, 2020 to $901.1 million for the year ended December 31, 2021. The increase is primarily attributed to funding optimization and balance sheet growth in the continued low interest rate environment. On a fully tax-equivalent basis, net interest income increased $9.3 million from 2020 to 2021.

Net interest margin decreased 16 basis points from 3.00% for the year ended December 31, 2020 to 2.84% for the year ended December 31, 2021. The decrease is primarily attributed to lower loan and securities yields, partially offset by lower deposit and borrowings costs and higher Small Business Administration Paycheck Protection Program (PPP) loan fee accretion.

Average interest-earning assets increased $2.0 billion, or 6.7%, from $30.3 billion for the year ended December 31, 2020 to $32.3 billion for the year ended December 31, 2021, primarily due to increases of $0.2 billion, $0.6 billion, and $1.3 billion in average loans and leases, taxable and non-taxable investment securities, and interest-bearing deposits held at the FRB, respectively. The average yield on interest-earning assets decreased 40 basis points from 3.37% during 2020 to 2.97% during 2021, primarily due to lower market rates, partially offset by the aforementioned increases in average earning balances.

Average interest-bearing liabilities increased $1.8 billion, or 6.4%, from $28.6 billion for the year ended December 31, 20