UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

_______________________________________________________________________________

FORM 10-Q

_________________________________________________________________________________________________________________________________________-___________________________________________________________________________________________________

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

For the quarterly period ended March 31, 2022

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

_______________________________________________________________________________________

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)

(203) 578-2202

(Registrant's telephone number, including area code)

______________________________________________________________________________

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

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 transition 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes   ☒ No

At April 29, 2022, the number of shares of common stock, par value $.01 per share, outstanding was 178,099,467.

INDEX

		Page No.
Key to Acronyms and Terms		ii
Forward-Looking Statements		iii
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	28
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	71
Item 4.	Controls and Procedures	71
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	72
Item 1A.	Risk Factors	72
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 3.	Defaults Upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	72
Item 6.	Exhibits	73
EXHIBIT INDEX		73
SIGNATURES		74

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
(AOCL) AOCI	Accumulated other comprehensive (loss) income
ASC	Accounting Standards Codification
ASU or the Update	Accounting Standards Update
Basel III	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
CECL	Current expected credit losses
CET1 capital	Common Equity Tier 1 Capital, defined by Basel III capital rules
CFPB	Consumer Financial Protection Bureau
CLO	Collateralized loan obligations
CMBS	Non-agency commercial mortgage-backed securities
COVID-19	Coronavirus
DTA	Deferred tax asset
EAD	Exposure at default
FASB	Financial Accounting Standards Board
FDIC	Federal Deposit Insurance Corporation
FHLB	Federal Home Loan Bank
FICO	Fair Isaac Corporation
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
LIHTC	Low income housing tax credit
NAV	Net asset value
OCC	Office of the Comptroller of the Currency
OREO	Other real estate owned
PD	Probability of default
PPNR	Pre-tax, pre-provision net revenue
PPP	Small Business Administration Paycheck Protection Program
ROU	Right-of-use
SALT	State and local tax
SEC	United States Securities and Exchange Commission
SERP	Supplemental executive defined benefit 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"
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

ii

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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, including our ability to successfully complete our core conversion in the anticipated timeframe, and our ability to develop and successfully complete, if implemented, a plan to consolidate our corporate real estate;

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

▪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, Russia's invasion of Ukraine, 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 those 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 traditional and non-traditional 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 impacts 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, governmental, and sustainability concerns that may arise from our business activities.

Any forward-looking statement in this Quarterly Report on Form 10-Q speaks only as of the date on which it is made. Factors or events that could cause Webster's actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. Webster 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.

iii

PART I – FINANCIAL INFORMATION

ITEM 2. 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 quarter ended March 31, 2022 as compared to 2021. The following discussion should be read in conjunction with Webster Financial Corporation's Consolidated Financial Statements, and accompanying Notes thereto, for the year ended December 31, 2021, included in Webster Financial Corporation's Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on February 25, 2022, and in conjunction with the Condensed Consolidated Financial Statements, and accompanying Notes thereto, included in Item 1. Financial Statements. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the future results that may be attained for the entire year or other interim periods.

Executive Summary

Nature of Operations

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) is the principal consolidated subsidiary of Webster Financial Corporation. 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, with certain businesses operating in extended geographies. Webster Bank also offers equipment financing, warehouse lending, commercial real estate lending, asset-based lending, and treasury management solutions. HSA Bank is a leading provider of health savings accounts (HSAs), and delivers health reimbursement arrangements and flexible spending and commuter benefit account administration services to employers and individuals in all 50 states.

Mergers and Acquisitions

On January 31, 2022, Webster completed its previously announced merger with Sterling in an all-stock transaction valued at $5.2 billion. 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 March 31, 2022, the combined company had $65.1 billion in assets, $43.5 billion in loans and leases, and $54.4 billion in deposits, and operated 202 financial centers throughout southern New England and metro and suburban New York. 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 Bend acquisition accelerates Webster’s efforts underway to deliver enhanced user experiences at HSA Bank. Financial results for historical reporting periods reflect only the results of Webster's operations prior to the corresponding merger or acquisition.

The successful integration of Webster and Sterling’s operations will depend on the Company’s ability to successfully consolidate operations, its management teams, corporate cultures, systems and procedures, and eliminate redundancies and costs. Noteworthy accomplishments include the rebranding of branches and digital assets, the implementation of strong governance controls and organizational structures, the coordination of credit policies and procedures, the selection of certain key operating systems, and the launch of culture-shaping offsite workshops attended by substantially all of the Company's senior leaders, with an expected rollout to the entire organization by the end of the year. Current initiatives under development include the outline of a preliminary corporate real estate consolidation strategy to reduce the Company’s corporate facility square footage by approximately 45%, primarily throughout New York and Connecticut. In addition, key operating systems and process integration activities are underway, and Webster is well positioned to successfully execute its core conversion targeted for mid-2023.

In connection with the Sterling merger, Webster re-evaluated its strategic priorities as a combined organization, which resulted in modifications to the Company's strategic initiatives that were announced in December 2020. As a result, the Company released $3.8 million from its previously recorded severance accrual during the first quarter of 2022, with a corresponding adjustment to earnings.

Additional information regarding Webster's mergers and acquisitions and its strategic initiatives can be found within Note 2: Mergers and Acquisitions and Note 3: Strategic Initiatives in the Notes to Condensed Consolidated Financial Statements contained in Item 1. Financial Statements, respectively.

1

Results of Operations

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

	At or for the three months ended March 31,
(In thousands, except per share and ratio data)	2022			2021
Income and performance ratios:
Net (loss) income	$	(16,747)		$	108,078
Net (loss) income available to common shareholders	(20,178)			106,109
(Loss) earnings per diluted common share	(0.14)			1.17
Return on average assets (annualized)	(0.12)		%	1.31		%
Return on average common tangible common shareholders' equity (annualized) (non-GAAP)	(1.36)			16.79
Return on average common shareholders' equity (annualized)	(1.25)			13.65
Non-interest income as a percentage of total revenue	20.88			25.54
Asset quality:
Allowance for credit losses on loans and leases	$	569,371		$	328,351
Non-performing assets	251,206			152,808
Allowance for credit losses on loans and leases / total loans and leases	1.31		%	1.54		%
Net charge-offs (recoveries) / average loans and leases (annualized)	0.10			0.10
Non-performing loans and leases / total loans and leases	0.57			0.71
Non-performing assets / total loans and leases plus OREO	0.58			0.72
Allowance for credit losses on loans and leases / non-performing loans and leases	229.48			218.29
Other ratios:
Tangible equity (non-GAAP)	8.72		%	8.30		%
Tangible common equity (non-GAAP)	8.26			7.85
Tier 1 risk-based capital	12.05			12.55
Total risk-based capital	14.41			14.08
CET1 risk-based capital	11.46			11.89
Shareholders' equity / total assets	12.55			9.84
Net interest margin	3.21			2.92
Efficiency ratio (non-GAAP)	48.73			58.46
Equity and share related:
Common equity	$	7,893,156		$	3,127,891
Book value per common share	44.32			34.60
Tangible book value per common share (non-GAAP)	28.94			28.41
Common stock closing price	56.12			55.11
Dividends and equivalents declared per common share	0.40			0.40
Common shares issued and outstanding	178,102			90,410
Weighted-average common shares outstanding - basic	147,394			89,809
Weighted-average common shares outstanding - diluted	147,394			90,108

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, results of operations, 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 Webster'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 (tangible common equity) divided by common shares outstanding at the end of the reporting period. The tangible common equity ratio represents tangible common equity divided by total assets less goodwill and other intangible assets (tangible assets). Both of these measures are used by management to evaluate the strength of Webster's capital position. The annualized return on average tangible common shareholders' equity is calculated using net income available to common shareholders, adjusted for the annualized tax-effected amortization of intangible assets, as a percentage of average tangible common equity. 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 well Webster is managing its recurring operating expenses.

2

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 March 31,
(Dollars and shares in thousands, except per share data)	2022			2021
Tangible book value per common share:
Shareholders' equity	$	8,177,135		$	3,272,928
Less: Preferred stock	283,979			145,037
Goodwill and other intangible assets	2,738,353			559,617
Tangible common shareholders' equity	$	5,154,803		$	2,568,274
Common shares outstanding	178,102			90,410
Tangible book value per common share	$	28.94		$	28.41
Tangible common equity ratio:
Tangible common shareholders' equity	$	5,154,803		$	2,568,274
Total assets	$	65,131,484		$	33,259,037
Less: Goodwill and other intangible assets	2,738,353			559,617
Tangible assets	$	62,393,131		$	32,699,420
Tangible common equity ratio	8.26		%	7.85		%

	Three months ended March 31,
(Dollars in thousands)	2022			2021
Return on average tangible common shareholders' equity:
Net income	$	(16,747)		$	108,078
Less: Preferred stock dividends	3,431			1,969
Add: Intangible assets amortization, tax-affected	5,046			900
Income adjusted for preferred stock dividends and intangible assets amortization	$	(15,132)		$	107,009
Income adjusted for preferred stock dividends and intangible assets amortization (annualized)	$	(60,528)		$	428,036
Average shareholders' equity	$	6,691,490		$	3,254,203
Less: Average preferred stock	236,121			145,037
Average goodwill and other intangible assets	2,007,266			560,173
Average tangible common shareholders' equity	$	4,448,103		$	2,548,993
Return on average tangible common shareholders' equity	(1.36)		%	16.79		%
Efficiency ratio:
Non-interest expense	$	359,785		$	187,982
Less: Foreclosed property activity	(75)			91
Intangible assets amortization	6,387			1,139
Operating lease depreciation	1,632			—
Merger-related expenses	108,495			—
Other expense (1)	(4,140)			9,441
Non-interest expense	$	247,486		$	177,311
Net interest income	$	394,248		$	223,764
Add: Tax-equivalent adjustment	8,158			2,495
Non-interest income	104,035			76,757
Other income (2)	3,082			277
Less: Operating lease depreciation	1,632			—
Income	$	507,891		$	303,293
Efficiency ratio	48.73		%	58.46		%

(1)Other expense (non-GAAP) includes the net charges associated with our strategic initiatives.

(2)Other income (non-GAAP) includes the taxable equivalent of net income from low income housing tax-credit (LIHTC) investments.

3

Net Interest Income

Net interest income is Webster's primary source of revenue, representing 79.1% and 74.5% of total revenues for the three months ended March 31, 2022, and 2021, respectively, and is the difference between interest income on interest-earning assets, such as loans and leases and investment securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund interest-earning 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 impacts monetary policies, competition for loans and deposits, as well as the extent of interest lost on non-performing assets.

Net interest income increased $170.4 million, or 76.2%, from $223.8 million for the three months ended March 31, 2021, to $394.2 million for the three months ended March 31, 2022. On a fully tax-equivalent basis, net interest income increased $176.1 million. Net interest margin increased 29 basis points from 2.92% for the three months ended March 31, 2021, to 3.21% for the three months ended March 31, 2022. The increase is primarily attributed to the merger with Sterling, and includes net purchase accounting accretion from acquired loans and leases, investment securities, and interest-bearing liabilities.

Average interest-earning assets increased $19.2 billion, or 61.6%, from $31.1 billion for the three months ended March 31, 2021, to $50.3 billion for the three months ended March 31, 2022, primarily due to increases of $14.4 billion and $4.5 billion in average loans and leases and average investment securities, respectively. The average yield on interest-earning assets increased 25 basis points from 3.08% for the three months ended March 31, 2021, to 3.33% for the three months ended March 31, 2022. The increase in interest-earning assets and the increase in average yield were both impacted by the Sterling merger.

Average interest-bearing liabilities increased $17.9 billion, or 60.7%, from $29.5 billion for the three months ended March 31, 2021, to $47.4 billion for the three months ended March 31, 2022, primarily due to increases of $17.6 billion and $0.3 billion in average deposits and average long-term debt, partially offset by a decrease of $124.9 million in average FHLB advances. Average deposit growth was primarily impacted by the merger with Sterling and the strong liquidity position of retail and commercial customers. The average rate on interest-bearing liabilities decreased 3 basis points from 0.16% for the three months ended March 31, 2021, to 0.13% for the three months ended March 31, 2022, primarily due to customers' migration from higher cost time deposits to more liquid, lower cost deposit products, which was partially offset by the the subordinated debt assumed from Sterling in the merger.

4

The following table summarizes daily average balances, interest, and average yield/rate by major category, and net interest margin on a fully tax-equivalent basis:

	Three months ended March 31,
	2022						2021
(Dollars in thousands)	Average Balance		Interest Income/Expense		Average Yield/Rate		Average Balance		Interest Income/Expense		Average Yield/Rate
Assets
Interest-earning assets:
Loans and leases (1)	$	35,912,829	$	349,417	3.90	%	$	21,481,320	$	191,288	3.57	%
Investment Securities: (2)
Taxable	11,461,292		57,467		2.02		8,152,754		40,944		2.05
Non-taxable	1,960,251		9,802		2.00		737,321		5,333		2.89
Total investment securities	13,421,543		67,269		2.02		8,890,075		46,277		2.12
FHLB and FRB stock	166,357		821		2.00		77,632		237		1.24
Interest-bearing deposits (3)	799,265		453		0.23		680,367		176		0.10
Loans held for sale	17,918		26		0.58		14,351		91		2.54
Total interest-earning assets	50,317,912		$	417,986	3.33	%	31,143,745		$	238,069	3.08	%
Non-interest-earning assets	4,490,665						1,982,315
Total assets	$	54,808,577					$	33,126,060
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits	$	11,263,282	$	—	—	%	$	6,436,858	$	—	—	%
Health savings accounts	7,759,465		1,087		0.06		7,451,175		1,607		0.09
Interest-bearing checking, money market, and savings	24,316,436		5,019		0.08		11,995,473		1,720		0.06
Time deposits	2,544,286		1,293		0.21		2,371,026		3,112		0.53
Total deposits	45,883,469		7,399		0.07		28,254,532		6,439		0.09
Securities sold under agreements to repurchase	577,039		956		0.66		457,694		622		0.54
Federal funds purchased	—		—		—		65,034		13		0.08
Other borrowings	—		1		—		—		—		—
FHLB advances	10,936		56		2.03		135,787		513		1.51
Long-term debt (2)	896,310		7,168		3.34		567,058		4,223		3.23
Total borrowings	1,484,285		8,181		2.26		1,225,573		5,371		1.82
Total interest-bearing liabilities	47,367,754		$	15,580	0.13	%	29,480,105		$	11,810	0.16	%
Non-interest-bearing liabilities	749,333						391,752
Total liabilities	48,117,087						29,871,857
Preferred stock	236,121						145,037
Common shareholders' equity	6,455,369						3,109,166
Total shareholders' equity	6,691,490						3,254,203
Total liabilities and shareholders' equity	$	54,808,577					$	33,126,060
Tax-equivalent net interest income			$	402,406					$	226,259
Less: Tax-equivalent adjustments			(8,158)						(2,495)
Net interest income			$	394,248					$	223,764
Net interest margin (4)					3.21	%					2.92	%

(1)Non-accrual loans have been included in the computation of average balances.

(2)For the purposes of our average yield/rate and margin computations, unsettled trades on investment securities and unrealized gain (loss) balances on securities available-for-sale and senior fixed-rate notes hedges are excluded.

(3)Interest-bearing deposits are a component of cash and cash equivalents on the Condensed Consolidated Statements of Cash Flows included in Part I - Item 1. Financial Statements.

(4)Tax-equivalent net interest margin approximates net interest margin for all periods presented.

5

The following table summarizes the change in net interest income attributable to changes in rate and volume, and reflects net interest income on a fully tax-equivalent basis:

	Three months ended March 31,
	2022 vs. 2021 Increase (decrease) due to						2021 vs. 2020 Increase (decrease) due to
(In thousands)	Rate (1)		Volume		Total		Rate (1)		Volume		Total
Change in interest on interest-earning assets:
Loans and leases	$	54,161	$	103,968	$	158,129	$	(40,473)	$	14,843	$	(25,630)
Investment securities	(446)		21,438		20,992		(16,150)		4,019		(12,131)
FHLB and FRB stock	313		271		584		(531)		(482)		(1,013)
Interest-bearing deposits	246		31		277		(1,732)		1,716		(16)
Loans held for sale	2		(67)		(65)		(23)		(61)		(84)
Total interest income	$	54,276	$	125,641	$	179,917	$	(58,909)	$	20,035	$	(38,874)
Change in interest on interest-bearing liabilities:
Health savings accounts	$	(587)	$	67	$	(520)	$	(2,025)	$	336	$	(1,689)
Interest-bearing checking, money market, and savings	3,000		299		3,299		(13,460)		2,777		(10,683)
Time deposits	(1,008)		(811)		(1,819)		(6,224)		(2,808)		(9,032)
Securities sold under agreements to repurchase	171		163		334		(334)		67		(267)
Federal funds purchased	—		(13)		(13)		(199)		(2,628)		(2,827)
Other borrowings	1		—		1		—		—		—
FHLB advances	14		(471)		(457)		(190)		(6,165)		(6,355)
Long-term debt	292		2,653		2,945		(1,164)		158		(1,006)
Total interest expense	$	1,883	$	1,887	$	3,770	$	(23,596)	$	(8,263)	$	(31,859)
Net change in net interest income	$	52,393	$	123,754	$	176,147	$	(35,313)	$	28,298	$	(7,015)

(1)The change attributable to mix, a combined impact of rate and volume, is included with the change due to rate.

Average loans and leases increased $14.4 billion, or 67.2%, from $21.5 billion for the three months ended March 31, 2021 to $35.9 billion for the three months ended March 31, 2022, which was primarily due to the merger with Sterling, as well as loan growth across the residential and commercial categories. This growth was partially offset by lower Paycheck Protection Program (PPP) loan balances. At March 31, 2022, and 2021, the loan and lease portfolio comprised 71.4% and 69.0% of total average interest-earning assets, respectively. The average yield on loans and leases increased 33 basis points from 3.57% for the three months ended March 31, 2021, to 3.90% for the three months ended March 31, 2022, primarily due to purchase accounting accretion on acquired loans and leases.

Average taxable and non-taxable investment securities increased $4.5 billion, or 51.0%, from $8.9 billion for the three months ended March 31, 2021 to $13.4 billion for the three months ended March 31, 2022, primarily due to the merger with Sterling. At March 31, 2022, and 2021, the investment securities portfolio comprised 26.7% and 28.5% of total average interest-earning assets, respectively. The average yield on investment securities decreased 10 basis points from 2.12% for the three months ended March 31, 2021, to 2.02% for the three months ended March 31, 2022. This was primarily due to the interest rate environment, which was partially offset by a higher average yield on the acquired Sterling investment securities net of purchase premium amortization.

Average total deposits increased $17.6 billion, or 62.4%, from $28.3 billion for the three months ended March 31, 2021, to $45.9 billion for the three months ended March 31, 2022, reflecting increases of $4.8 billion and $12.8 billion in non-interest-bearing deposits and interest-bearing deposits, respectively. The overall increase in deposits was primarily due to the merger with Sterling, as well as the strong liquidity position of retail and commercial customers. At March 31, 2022, and 2021, deposits comprised 96.9% and 95.8% of total average interest-bearing liabilities, respectively. The average rate on deposits decreased 2 basis points from 0.09% for the three months ended March 31, 2021, to 0.07% for the three months ended March 31, 2022, primarily due to the interest rate environment and the run-off of higher cost time deposits. Higher cost time deposits as a percentage of total interest-bearing deposits decreased from 10.9% for the three months ended March 31, 2021, to 7.3% for the three months ended March 31, 2022, primarily due to customers' migration to more liquid, lower cost deposit products.

Average long-term debt increased $329.2 million, or 58.1%, from $567.1 million for the three months ended March 31, 2021 to $896.3 million for the three months ended March 31, 2022, primarily due to the merger with Sterling. At March 31, 2022, and 2021, long-term debt comprised 1.89% and 1.92% of total average interest-bearing liabilities, respectively. The average rate on long-term debt increased 11 basis points from 3.23% for the three months ended March 31, 2021 to 3.34% for the three months ended March 31, 2022, primarily due to the subordinated debt assumed from Sterling in the merger.

6

Provision for Credit Losses

The provision for credit losses increased $214.6 million, or 833.4%, from a benefit of $25.8 million for the three months ended March 31, 2021 to an expense of $188.8 million for the three months ended March 31, 2022. The increase is primarily attributed to the establishment of the initial ACL of $175.1 million for non-purchased credit-deteriorated (PCD) loans and leases that were acquired from Sterling. During the three months ended March 31, 2022 and 2021, total net charge-offs were $8.9 million and $5.3 million, respectively. The $3.6 million increase is primarily attributed to an increased volume of net charge-offs in the commercial non-mortgage portfolio, partially offset by a decreased volume of net charge-offs in the commercial real estate and other consumer portfolios.

Additional information regarding the Company's provision for credit losses and ACL can be found under the sections captioned "Loans and Leases" through "Allowance for Credit Losses" contained elsewhere in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Non-Interest Income

	Three months ended March 31,
(Dollars in thousands)	2022		2021
Deposit service fees	$	47,827	$	40,469
Loan and lease related fees	22,679		8,313
Wealth and investment services	10,597		9,403
Mortgage banking activities	428		2,642
Increase in cash surrender value of life insurance policies	6,732		3,533
Other income	15,772		12,397
Total non-interest income	$	104,035	$	76,757

Total non-interest income increased $27.3 million, or 35.5%, from $76.8 million for the three months ended March 31, 2021 to $104.0 million for the three months ended March 31, 2022, primarily due to increases in deposit service fees, loan and lease related fees, the cash surrender value of life insurance policies, and other income, all of which were primarily driven by the merger with Sterling, partially offset by a decrease in mortgage banking activities.

Deposit service fees increased $7.4 million, or 18.2%, from $40.5 million for the three months ended March 31, 2021 to $47.8 million for the three months ended March 31, 2022, primarily due to the merger with Sterling, as well as higher interchange income from increased debit card spending in the HSA and Consumer Banking segments.

Loan and lease related fees increased $14.4 million, or 172.8%, from $8.3 million for the three months ended March 31, 2021 to $22.7 million for the three months ended March 31, 2022, primarily due to the merger with Sterling, which included $2.2 million of operating lease income, as well as an increase in prepayment penalties and other loan related fees.

Mortgage banking activities decreased $2.2 million, or 83.8%, from $2.6 million for the three months ended March 31, 2021 to $0.4 million for the three months ended March 31, 2022, primarily due to lower originations for sale, as the Company continues to execute on its strategic decision to originate residential mortgage loans for investment rather than for sale.

The cash surrender value of life insurance policies increased $3.2 million, or 90.5%, from $3.5 million for the three months ended March 31, 2021 to $6.7 million for the three months ended March 31, 2022, primarily due to the additional bank-owned life insurance policies acquired in the merger with Sterling.

Other income increased $3.4 million, or 27.2%, from $12.4 million for the three months ended March 31, 2021 to $15.8 million for the three months ended March 31, 2022, primarily due to an increase in income due to the impact of the merger with Sterling, higher income from client interest rate derivative activities, and gains on sale of loans not originated for sale.

7

Non-Interest Expense

	Three months ended March 31,
(Dollars in thousands)	2022		2021
Compensation and benefits	$	184,002	$	107,600
Occupancy	18,615		15,650
Technology and equipment	55,401		28,516
Intangible assets amortization	6,387		1,139
Marketing	3,509		2,504
Professional and outside services	54,091		9,776
Deposit insurance	5,222		3,956
Other expense	32,558		18,841
Total non-interest expense	$	359,785	$	187,982

Total non-interest expense increased $171.8 million, or 91.4%, from $188.0 million for the three months ended March 31, 2021 to $359.8 million for the three months ended March 31, 2022, primarily due to increases in compensation and benefits, occupancy, technology and equipment, intangible assets amortization, professional and outside services, and other expense, all of which were primarily driven by the merger with Sterling.

Compensation and benefits increased $76.4 million, or 71.0%, from $107.6 million for the three months ended March 31, 2021 to $184.0 million for the three months ended March 31, 2022, primarily due to $41.6 million of merger-related expenses, which included $26.9 million and $11.9 million of severance and retention, respectively, and higher salaries and incentives related to the increase in employees as a result of the merger, partially offset by a decrease in strategic initiatives severance charges.

Occupancy increased $3.0 million, or 18.9%, from $15.7 million for the three months ended March 31, 2021 to $18.6 million for the three months ended March 31, 2022, primarily due to the additional operating lease costs and depreciation related to the acquired Sterling branches and corporate offices, partially offset by a decrease in strategic initiatives charges.

Technology and equipment increased $26.9 million, or 94.3%, from $28.5 million for the three months ended March 31, 2021 to $55.4 million for the three months ended March 31, 2022, primarily due to $19.1 million of merger-related expenses, which included $17.7 million in contract termination costs, and an increase in technology and equipment service contracts due to the impact of the merger with Sterling.

Intangible assets amortization increased $5.2 million, or 460.8%, from $1.1 million for the three months ended March 31, 2021 to $6.4 million for the three months ended March 31, 2022, due to the additional amortization expense related to the core deposits and customer relationship intangible assets acquired in connection with the Sterling merger and Bend acquisition.

Professional and outside services increased $44.3 million, or 453.3%, from $9.8 million for the three months ended March 31, 2021 to $54.1 million for the three months ended March 31, 2022, primarily due to $44.5 million of merger-related expenses, which included $32.1 million of advisory fees, as well as legal and consulting fees, and an increase in professional service costs due to the impact of the merger with Sterling, partially offset by a decrease in strategic initiative charges.

Other expense increased $13.7 million, or 72.8%, from $18.8 million for the three months ended March 31, 2021 to $32.6 million for the three months ended March 31, 2022, primarily due to an increase in expenses due to the impact of the merger with Sterling, which included $1.6 million of operating lease depreciation and $3.0 million of merger-related expenses.

8

Income Taxes

Webster recognized income tax (benefit) expense of $(33.6) million and $30.2 million for the three months ended March 31, 2022, and 2021, respectively, reflecting an effective tax benefit rate of 66.7% for the three months ended March 31, 2022, and an effective tax expense rate of 21.8% for the three months ended March 31, 2021.

The income tax benefit and related effective tax benefit rate for the three months ended March 31, 2022, reflects the effects of the pre-tax loss, as well as tax-exempt income and tax credits recognized during the period, and a $13.7 million deferred state and local tax (SALT) benefit associated with the merger with Sterling, of which $9.9 million related to a change in management's estimate about the realizability of its SALT deferred tax assets (DTAs) due to an estimated increase in future taxable income. These effects were partially offset by the effect of $21.0 million of merger-related expenses recognized during the period that were estimated to be nondeductible for income tax purposes.

At March 31, 2022, and December 31, 2021, Webster recorded a valuation allowance on its DTAs of $29.2 million and $37.4 million, respectively. The $29.2 million at March 31, 2022, reflects a reduction of $9.9 million for the change in estimate discussed above, and includes a $1.7 million valuation allowance related to the Bend acquisition. At March 31, 2022, and December 31, 2021, Webster's gross DTAs included $71.1 million and $64.4 million, respectively, applicable to SALT net operating loss carryforwards that are available to offset future taxable income. The $71.1 million at March 31, 2022, includes $5.6 million related to the Sterling merger and $1.1 million related to the Bend acquisition. Webster's total gross DTAs at March 31, 2022, also included $5.6 million and $0.5 million, respectively, of federal net operating loss and credit carryforwards related to the Sterling merger and Bend acquisition, which are subject to annual limitations on utilization.

The ultimate realization of DTAs is dependent on the generation of future taxable income during the periods in which the net operating loss and credit carryforwards are available. In making its assessment, management considers the Company's forecasted future results of operations, estimates the content and apportionment of its income by legal entity over the near term for SALT purposes, and also applies longer-term growth rate assumptions. Based on its estimates, management believes it is more likely than not that the Company will realize its DTAs, net of the valuation allowance, at March 31, 2022. However, it is possible that some or all of Webster's net operating loss and credit carryforwards could expire unused or that more net operating loss and credit carryforwards could be utilized than estimated, either as a result of changes in future forecasted levels of taxable income or if future economic or market conditions or interest rates were to vary significantly from the Company's forecasts and, in turn, impact its future results of operations.

Additional information regarding Webster's income taxes, including its DTAs, can be found within Note 11: Income Taxes in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

9

Segment Reporting

Webster's operations are organized into three reportable segments that represent its primary businesses: Commercial Banking, HSA Bank, and Consumer Banking. These segments reflect how executive management responsibilities are assigned, how discrete financial information is evaluated, the type of customer served, and how products and services are provided. Segments are evaluated using pre-tax, pre-provision net revenue (PPNR). Certain Treasury activities, along with the amounts required to reconcile profitability metrics to those reported in accordance with GAAP, are included in the Corporate and Reconciling category. Additional information regarding the Company's reportable segments and its segment reporting methodology can be found within Note 17: Segment Reporting in the Notes to Condensed Consolidated Financial Statements contained in Item 1. Financial Statements.

Effective January 1, 2022, Webster realigned its investment services operations from Commercial Banking to Consumer Banking to better serve its customers and deliver operational efficiencies. Under this realignment, $125.4 million of deposits and $4.3 billion of assets under administration (off-balance sheet) were reassigned from Commercial Banking to Consumer Banking. There was no goodwill reallocation nor goodwill impairment as a result of the reorganization. In addition, the non-interest expense allocation methodology was modified to exclude certain overhead and merger-related costs that are not directly related to segment performance. Prior period results of operations have been recast accordingly to reflect the realignment.

The following is a description of Webster’s three reportable segments and their primary services:

Commercial Banking serves corporate customers with more than $2 million of revenues through its Commercial Real Estate, Business Banking, Capital Finance, Middle Market, Public Sector Finance, Sponsor and Specialty Finance, Mortgage Warehouse Lending, Private Banking, and Treasury Management components.

HSA Bank 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 Company’s use of wholesale funding in support of its loan growth. In addition, non-interest revenue is generated predominantly through service fees and interchange income.

Consumer Banking serves individual customers and small businesses with less than $2 million of revenues by offering consumer deposits, residential mortgages, home equity lines, secured and unsecured loans, debit and credit card products, and investment services. Consumer Banking operates a distribution network consisting of 202 banking centers and 359 ATMs, a customer care center, and a full range of web and mobile-based banking services, primarily throughout southern New England and the New York Metro and Suburban markets.

10

Commercial Banking

Operating Results:

	Three months ended March 31,
(In thousands)	2022		2021
Net interest income	$	287,069	$	141,486
Non-interest income	38,743		18,376
Non-interest expense	89,240		46,284
Pre-tax, pre-provision net revenue	$	236,572	$	113,578

Commercial Banking's PPNR increased $123.0 million, or 108.3%, for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, due to increases in both net interest income and non-interest income, partially offset by an increase in non-interest expense, all of which were primarily driven by the merger with Sterling. The $145.6 million increase in net interest income is primarily attributed to incremental loan and deposit balances acquired from Sterling, and loan and deposit growth. The $20.4 million increase in non-interest income is primarily attributed to incremental fee income due to the merger, and loan and lease related fees. The $43.0 million increase in non-interest expense is primarily attributed to incremental expenses incurred related to the acquired Sterling commercial business, which was partially offset by the benefits of costs savings initiatives implemented over the course of 2021.

Selected Balance Sheet and Off-Balance Sheet Information:

(In thousands)	At March 31, 2022		At December 31, 2021
Loans and leases	$	34,928,169	$	15,209,515
Deposits	21,527,954		9,519,362
Assets under administration/management (off-balance sheet)	2,692,402		2,869,385

Loans and leases increased $19.7 billion, or 129.6%, at March 31, 2022, as compared to December 31, 2021, primarily due to the merger with Sterling and growth within the sponsor and specialty line of business. Total portfolio originations for the three months ended March 31, 2022, and 2021 were $2.0 billion and $1.0 billion, respectively. The $1.0 billion increase was primarily attributed to the merger with Sterling, along with increased commercial non-mortgage originations.

Deposits increased $12.0 billion, or 126.1%, at March 31, 2022, as compared to December 31, 2021, primarily due to the merger with Sterling, along with seasonality of municipal deposit products and client acquisitions.

Commercial Banking held $0.7 billion and $0.8 billion in assets under administration and $2.0 billion and $2.1 billion in assets under management at March 31, 2022, and December 31, 2021, respectively. The combined $0.2 billion decrease, or 6.2%, was primarily due to valuations in the equity markets during the three months ended March 31, 2022.

11

HSA Bank

Operating Results:

	Three months ended March 31,
(In thousands)	2022		2021
Net interest income	$	44,577	$	42,109
Non-interest income	26,958		27,005
Non-interest expense	36,409		36,005
Pre-tax net revenue	$	35,126	$	33,109

HSA Bank's pre-tax net revenue increased $2.0 million, or 6.1%, for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to an increase in net interest income, which was partially offset by an increase in non-interest expense. Non-interest income remained flat on a comparative basis. The $2.5 million increase in net interest income is primarily attributed to an increase in the net interest rate spread on deposits and overall deposit growth. The $0.4 million increase in non-interest expense is primarily attributed to incremental expenses from Bend's acquired business, which was partially offset by lower compensation and benefits costs.

Selected Balance Sheet and Off-Balance Sheet Information:

(In thousands)	At March 31, 2022		At December 31, 2021
Deposits	$	7,804,846	$	7,397,997
Assets under administration, through linked investment accounts (off-balance sheet)	3,761,362		3,718,610

Deposits increased $406.8 million, or 5.5%, at March 31, 2022, as compared to December 31, 2021, primarily due to an increase in the number of account holders and organic deposit growth, which was partially offset by a decrease in third party administrator deposits. HSA deposits accounted for approximately 14.4% and 24.8% of Webster's total consolidated deposits at March 31, 2022, and December 31, 2021, respectively, with the lower mix driven by the inflow of deposits as a result of the merger with Sterling.

Assets under administration, through linked investment accounts, increased $42.8 million, or 1.1%, at March 31, 2022, as compared to December 31, 2021, primarily due to additional account holders and balances from the acquisition of Bend, which was partially offset by valuations in the equity markets during the three months ended March 31, 2022.

12

Consumer Banking

Operating Results:

	Three months ended March 31,
(In thousands)	2022		2021
Net interest income	$	136,580	$	89,365
Non-interest income	27,892		22,872
Non-interest expense	95,747		75,311
Pre-tax, pre-provision net revenue	$	68,725	$	36,926

Consumer Banking's PPNR increased $31.8 million, or 86.1%, for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, due to increases in both net interest income and non-interest income, partially offset by an increase in non-interest expense, all of which were primarily driven by the merger with Sterling. The $47.2 million increase in net interest income is primarily attributed to incremental loan and deposit balances acquired from Sterling, and loan and deposit growth. The $5.0 million increase in non-interest income is primarily attributed to incremental fee income due to the merger, and loan and lease related fees. The $20.4 million increase in non-interest expense is primarily attributed to incremental expenses incurred related to the acquired Sterling consumer business, which was partially offset by the benefits of costs savings initiatives implemented over the course of 2021.

Selected Balance Sheet and Off-Balance Sheet Information:

(In thousands)	At March 31, 2022		At December 31, 2021
Loans	$	8,588,704	$	7,062,182
Deposits	24,115,388		12,926,302
Assets under administration (off-balance sheet)	7,929,328		4,332,901

Loans increased $1.5 billion, or 21.6%, at March 31, 2022, as compared to December 31, 2021, primarily due to the merger with Sterling and residential mortgage loan growth, partially offset by net principal paydowns in home equity loans, and the continued run-off of consumer Lending Club loans. Total portfolio originations during the three months ended March 31, 2022 and 2021 were $0.6 billion and $0.8 billion, respectively. The decrease was primarily attributed to an increase in market rates, which resulted in lower residential mortgage loan originations.

Deposits increased $11.2 billion, or 86.6%, at March 31, 2022 as compared to December 31, 2021, primarily due to the merger with Sterling. Customer preferences for maintaining liquidity resulted in higher balances in small business and consumer transaction accounts, particularly across savings accounts and money markets, as account holders with maturing certificates of deposit migrated to more liquid deposit products.

Consumer Banking held $7.9 billion and $4.3 billion in assets under administration at March 31, 2022, and December 31, 2021, respectively. The $3.6 billion increase was primarily due to the merger with Sterling, partially offset by valuations in the equity markets during the three months ended March 31, 2022.

13

Financial Condition

Total assets increased $30.2 billion, or 86.5%, from $34.9 billion at December 31, 2021 to $65.1 billion at March 31, 2022. The change in total assets was primarily attributed to the following:

•Total investment securities, net increased $4.7 billion, with increases of $4.5 billion and $164.1 million in the available-for-sale and held-to-maturity portfolios, respectively, primarily due to $4.4 billion of investment securities acquired from Sterling in the merger, all of which were classified as available-for-sale based on Webster's intent at closing;

•Loans and leases increased $21.3 billion, with increases of $19.8 billion and $1.5 billion in the commercial and consumer portfolios, respectively, primarily due to $20.5 billion of gross loans and leases acquired from Sterling in the merger, which is inclusive of a $317.6 million purchase discount. Webster also originated $2.6 billion of loans and leases during the three months ended March 31, 2022, particularly across the commercial non-mortgage, commercial real estate, and residential mortgage categories. These increases were partially offset by the forgiveness of PPP loans, net paydowns in home equity loans, and the run-off of consumer Lending Club loans. In addition, Webster recorded $88.0 million and $175.1 million of initial ACL for the PCD and non-PCD loans and leases acquired from Sterling, respectively, which primarily contributed to the $268.2 million increase in the ACL on loans and leases;

•Goodwill and other net intangible assets increased a combined $2.2 billion. Goodwill increased $2.0 billion, which reflects the $1.9 billion and $36.0 million recognized in connection with the Sterling merger and Bend acquisition, respectively. The $206.7 million increase in other net intangible assets is due to the $119.1 million core deposit and $94.0 million customer relationship intangible assets acquired from Sterling and Bend, respectively, partially offset by current period amortization charges; and

•Accrued interest receivable and other assets increased $879.1 million primarily due to $959.5 million of balances acquired from Sterling in the merger. Notable increases include $103.4 million in accrued interest receivable, $59.1 million in alternative investments, $505.3 million in LIHTC investments, and a combined $73.7 million in accounts receivable and prepaid expenses. These increases were partially offset by a decrease of $77.8 million in treasury derivative assets.

Total liabilities increased $25.5 billion, or 80.9%, from $31.5 billion at December 31, 2021 to $57.0 billion at March 31, 2022. The change in total liabilities was primarily attributed to the following:

•Total deposits increased $24.5 billion, with increases of $6.5 billion and $18.0 billion in non-interest bearing deposits and interest-bearing deposits, respectively, primarily due to $23.3 billion of deposits assumed from Sterling in the merger;

•Long-term debt increased $515.3 million, primarily due to $499.0 million aggregate par value of subordinated notes assumed from Sterling in the merger, adjusted for a $17.9 million purchase premium, which is being amortized over the remaining lives of the subordinated notes;

•Accrued expenses and other liabilities increased $608.7 million, primarily due to the $595.3 million of balances assumed from Sterling in the merger. Notable increases include $106.9 million in derivative liabilities, $117.1 million in operating lease liabilities, and $247.2 million in unfunded commitments for LIHTC investments.

Total shareholders' equity increased $4.7 billion, or 137.8%, from $3.4 billion at December 31, 2021 to $8.2 billion at March 31, 2022. The change in total shareholders' equity was attributed to the following:

•Common shares issued in the merger with Sterling totaling approximately $5.0 billion, of which $43.9 million pertained to replacement share-based compensation awards;

•The conversion of Sterling Series A preferred stock into Webster Series G preferred stock at a fair value of $138.9 million;

•Net loss recognized of $16.7 million;

•Dividends paid to common and preferred shareholders of $36.2 million and $3.4 million, respectively;

•Other comprehensive loss, net of tax, of $253.1 million, primarily due to market value decreases in the Company's available-for-sale securities portfolio and cash flow hedges;

•Employee share-based compensation plan activity of $9.0 million, inclusive of restricted stock amortization and forfeitures, and stock options exercised of $0.4 million; and

•Repurchases of common stock of $122.2 million under the Company's common stock repurchase program and $19.0 million related to employee share-based compensation plans.

14

Investment Securities

Through its Corporate Treasury function, Webster maintains and invests in debt securities that are primarily used to provide a source of liquidity for operating needs, to generate interest income, and as a means to manage the Company's interest-rate risk. Webster's debt securities are classified into two major categories: available-for-sale and held-to-maturity.

ALCO manages the Company's debt securities in accordance with regulatory guidelines and corporate policies, which include limitations on aspects such as concentrations in and types of investments, as well as minimum risk ratings per type of security. In addition, the OCC may further establish individual limits on certain types of investments if the concentration in such investment presents a safety and soundness concern. At March 31, 2022 and December 31, 2021, Webster had investment securities with a total net carrying value of $15.1 billion and $10.4 billion, respectively, with an average risk weighting for regulatory purposes of 19.5% and 12.5%, respectively. Although the Bank held the entirety of Webster's investment portfolio at both March 31, 2022 and December 31, 2021, the Holding Company may also directly hold investments.

The following table summarizes the balances and percentage composition of Webster's investment securities:

	At March 31, 2022				At December 31, 2021
(In thousands)	Amount		%		Amount		%
Available-for-sale:
U.S. Treasury notes	$	732,425	8.4	%	$	396,966	9.4	%
Government agency debentures	217,219		2.5		—		—
Municipal bonds and notes	1,894,537		21.7		—		—
Agency CMO	79,513		0.9		90,384		2.2
Agency MBS	2,574,569		29.4		1,593,403		37.6
Agency CMBS	1,583,820		18.1		1,232,541		29.1
CMBS	864,157		9.9		886,263		20.9
CLO	14,233		0.1		21,847		0.5
Corporate debt	767,044		8.8		13,450		0.3
Other	17,380		0.2		—		—
Total available-for-sale	$	8,744,897	100.0	%	$	4,234,854	100.0	%
Held-to-maturity:
Agency CMO	$	36,533	0.6	%	$	42,405	0.7	%
Agency MBS	2,915,114		45.8		2,901,593		46.8
Agency CMBS	2,548,347		40.1		2,378,475		38.4
Municipal bonds and notes (1)	696,601		10.9		705,918		11.4
CMBS	165,863		2.6		169,948		2.7
Total held-to-maturity	$	6,362,458	100.0	%	$	6,198,339	100.0	%
Total investment securities	$	15,107,355			$	10,433,193

(1)The balances at both March 31, 2022 and December 31, 2021, exclude the allowance for credit losses recorded on held-to-maturity debt securities of $0.2 million.

Available-for-sale debt securities increased $4.5 billion, or 106.5%, from $4.2 billion at December 31, 2021 to $8.7 billion at March 31, 2022, primarily due to the merger with Sterling, as the Company acquired $4.4 billion of debt securities at fair value on January 31, 2022, all of which were classified as available-for-sale based on Webster's intent at closing. The debt securities acquired from Sterling resulted in a $221.6 million net purchase premium over par value accounted for as a yield adjustment using the effective interest method. Webster also purchased an additional $714.2 million of available-for sale debt securities during the quarter. This total purchase activity was partially offset by paydowns and net premium amortization, particularly across the Agency MBS, Agency CMBS, and CMBS categories.

The tax-equivalent yield in the available-for-sale portfolio was 1.98% for the three months ended March 31, 2022 as compared to 1.83% for the three months ended March 31, 2021. The 15 basis point increase is attributed to lower premium amortization and higher rates on securities purchased in the current period. Available-for-sale debt securities are evaluated for credit losses on a quarterly basis. At March 31, 2022 and December 31, 2021, gross unrealized losses on available-for-sale debt securities were $333.3 million and $34.3 million, respectively. The $299.0 million increase in unrealized losses is primarily due to the increased portfolio size from the merger with Sterling, and higher market rates. Because these unrealized losses were attributable to factors other than credit deterioration, no ACL was recorded during the period. At March 31, 2022, Webster did not intend to sell these investment securities, and it is more likely than not that the Company will not be required to sell these securities prior to the anticipated recovery of their cost basis.

15

Held-to-maturity investment securities increased $164.1 million, or 2.6%, from $6.2 billion at December 31, 2021 to $6.4 billion at March 31, 2022, primarily due to purchases exceeding paydowns, calls, and net premium amortization, particularly across the Agency CMBS and Agency MBS categories. The tax-equivalent yield in the portfolio was 2.06% for the three months ended March 31, 2022 as compared to 2.29% for the three months ended March 31, 2021. The 23 basis point decrease is attributed to higher premium amortization and lower rates on securities purchased over the past year. Held-to-maturity debt securities are evaluated for credit losses on a quarterly basis under CECL. At March 31, 2022 and December 31, 2021, gross unrealized losses on held-to-maturity debt securities were $291.6 million and $55.7 million, respectively. The increase in unrealized losses is primarily due to higher market rates. The ACL on held-to-maturity debt securities was $0.2 million at both March 31, 2022 and December 31, 2021.

The following table summarizes the amortized cost of investment securities by contractual maturity, along with the respective weighted-average yields:

	At March 31, 2022
	1 Year or Less				1 - 5 Years				5 - 10 Years				After 10 Years				Total
(Dollars in thousands)	Amount		Weighted- Average Yield (1)		Amount		Weighted- Average Yield (1)		Amount		Weighted- Average Yield (1)		Amount		Weighted- Average Yield (1)		Amount		Weighted- Average Yield (1)
Available-for-sale:
U.S. Treasury notes	$	—	—	%	$	732,425	1.05	%	$	—	—	%	$	—	—	%	$	732,425	1.05	%
Government agency debentures	10,050		0.47		18,919		1.51		18,753		1.73		169,497		2.90		217,219		2.56
Municipal bonds and notes	12,113		1.26		252,093		1.26		608,558		1.45		1,021,773		1.57		1,894,537		1.49
Agency CMO	—		—		852		2.83		1,140		3.01		77,521		2.49		79,513		2.50
Agency MBS	94		(2.46)		6,149		0.80		182,512		1.37		2,385,814		1.99		2,574,569		1.95
Agency CMBS	3,509		1.78		47,013		2.09		102,047		1.98		1,431,251		1.95		1,583,820		1.96
CMBS	—		—		69,508		1.65		49,416		3.40		745,233		1.78		864,157		1.86
CLO	—		—		—		—		14,233		1.80		—		—		14,233		1.80
Corporate debt	—		—		183,835		2.18		488,557		3.56		94,652		2.92		767,044		3.15
Other	7,450		3.69		250		3.77		9,680		3.28		—		—		17,380		3.46
Total available-for-sale	$	33,216	1.61	%	$	1,311,044	1.33	%	$	1,474,896	2.26	%	$	5,925,741	1.93	%	$	8,744,897	1.89	%
Held-to-maturity:
Agency CMO	$	—	—	%	$	—	—	%	$	—	—	%	$	36,533	1.93	%	$	36,533	1.93	%
Agency MBS	—		—		2,984		2.44		26,243