Mergers and Acquisitions

6 Months Ended

Jun. 30, 2023

Business Combination and Asset Acquisition [Abstract]

interLINK Acquisition

On January 11, 2023, Webster acquired 100% ownership of interLINK from StoneCastle Partners LLC. interLINK is a technology-enabled deposit management platform that administers over $9 billion of deposits from FDIC-insured cash sweep programs between banks and broker/dealers and clearing firms. The acquisition provides the Company with access to a unique source of core deposit funding and scalable liquidity and adds another technology-enabled channel to its already differentiated, omnichannel deposit gathering capabilities.

The total purchase price of the acquisition was $174.6 million, which included cash paid of $158.6 million and $16.0 million of contingent consideration measured at fair value. The contingent consideration is payable in cash upon the achievement of discrete customer and deposit growth events within three years of the acquisition date. Additional information regarding the determination of fair value for contingent consideration liabilities can be found within Note 14: Fair Value Measurements.

The transaction has been accounted for as a business combination, and resulted in the addition of $31.4 million in net assets measured at fair value, which primarily comprised $36.0 million of broker dealer relationship intangible assets, $6.0 million of developed technology, a $4.0 million non-competition agreement intangible asset, and $15.9 million of royalty liabilities. The $143.2 million of goodwill recognized is deductible for tax purposes. The Company's valuations of the assets acquired and liabilities assumed in the interLINK acquisition were considered final as of June 30, 2023.

Bend Financial, Inc. Acquisition

On February 18, 2022, Webster acquired 100% of the equity interests of Bend, a cloud-based platform solution provider for HSAs, in exchange for cash of $55.3 million. The transaction was accounted for as a business combination, and resulted in the addition of $19.6 million in net assets measured at fair value, which primarily comprised $15.9 million of internal use software and a $3.0 million customer relationship intangible asset. The Company's valuations of the assets acquired and liabilities assumed in the Bend acquisition were considered final as of March 31, 2023.

Merger with Sterling Bancorp

On January 31, 2022, Webster completed its merger with Sterling. The transaction was accounted for as a business combination. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their fair values as of the merger effective date. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and are subject to change. Fair value estimates of the assets acquired and liabilities assumed were subject to adjustment during the one-year measurement period following the closing of the merger if new information was obtained about facts and circumstances that existed as of the merger effective date that, if known, would have affected the measurement of the amounts recognized as of that date. Measurement period adjustments made during the first quarter of 2023 totaled a net $25.6 million, which pertained to other assets and other liabilities and their related deferred tax impact. The Company's valuations of the assets acquired and liabilities assumed in the merger with Sterling were considered final as of March 31, 2023.

The following table summarizes the allocation of the purchase price to the fair value of the identifiable assets acquired and liabilities assumed from Sterling as of January 31, 2022:


(In thousands)	Unpaid Principal Balance		Fair Value
Purchase price consideration			$	5,180,300
Assets:
Cash and due from banks			510,929
Interest-bearing deposits			3,207
Investment securities available-for-sale			4,429,948
Federal Home Loan Bank and Federal Reserve Bank Stock			150,502
Loans held for sale			23,517
Loans and leases:
Commercial non-mortgage	$	5,570,782	5,527,657
Asset-based	694,137		683,958
Commercial real estate	6,790,600		6,656,405
Multi-family	4,303,381		4,255,906
Equipment financing	1,350,579		1,314,311
Warehouse lending	647,767		643,754
Residential	1,313,785		1,281,637
Home equity	132,758		122,553
Other consumer	12,559		12,525
Total loans and leases	$	20,816,348	20,498,706
Deferred tax assets, net			(59,716)
Premises and equipment			264,421
Other intangible assets			210,100
Bank-owned life insurance policies			645,510
Accrued interest receivable and other assets			986,729
Total assets acquired			$	27,663,853
Liabilities:
Non-interest-bearing deposits			$	6,620,248
Interest-bearing deposits			16,643,755
Securities sold under agreements to repurchase and other borrowings			27,184
Long-term debt			516,881

Accrued expenses and other liabilities			589,689
Total liabilities assumed			$	24,397,757
Net assets acquired			3,266,096
Goodwill			$	1,914,204

In connection with the merger with Sterling, the Company recorded $1.9 billion of goodwill, which represents the excess of the purchase price over the fair value of the net assets acquired. Information regarding the allocation of goodwill to the Company's reportable segments can be found within Note 16: Segment Reporting. For a description of the valuation methodologies used to estimate the fair values of the significant assets acquired and liabilities assumed, refer to Note 2: Mergers and Acquisitions of the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Merger-Related Expenses and Exit Activities

The following table summarizes total merger-related expenses, which were primarily incurred in connection with the merger with Sterling:


	Three months ended June 30,				Six months ended June 30,
(In thousands)	2023		2022		2023		2022
Compensation and benefits (1)	$	6,675	$	24,117	$	17,787	$	65,702
Occupancy (2)	495		30,999		1,230		31,355
Technology and equipment (3)	6,837		812		5,128		19,897
Professional and outside services (4)	18,939		3,824		38,948		48,281
Marketing	826		84		961		135
Other expense (5)	7,068		6,804		6,159		9,765
Total merger-related expenses	$	40,840	$	66,640	$	70,213	$	175,135

(1)Comprised primarily of severance and employee retention costs, and executive synergy stock awards.

(2)Comprised primarily of charges associated with the Company's corporate real estate consolidation plan in 2022.

(3)Comprised primarily of technology contract termination costs, and charges to support core conversion activities in 2023.
The amount for the six months ended June 30, 2023, includes a reduction of $4.8 million to a previously recorded technology-related contract termination charge during the three months ended March 31, 2023, due to a change in the expected use of certain services after core conversion.

(4)Comprised primarily of advisory, accounting, and other professional fees, and charges to support core conversion activities in 2023. The amount for the six months ended June 30, 2023, includes a reduction of $1.7 million to a previously recorded contract termination charge during the three months ended March 31, 2023, due to a decrease in volume usage.

(5)Comprised primarily of contract termination costs, disposals on property and equipment, and other miscellaneous expenses.

The following tables summarize the change in accrued expenses and other liabilities as it relates to severance and contract termination costs, which were primarily incurred in connection with the merger with Sterling:


	Three months ended June 30,
	2023						2022
(In thousands)	Severance		Contract Termination		Total		Severance		Contract Termination		Total
Balance, beginning of period	$	5,961	$	23,775	$	29,736	$	32,156	$	17,704	$	49,860
Additions charged to expense	1,988		—		1,988		7,808		—		7,808
Cash payments	(4,545)		—		(4,545)		(15,029)		—		(15,029)
Other	(235)		—		(235)		(421)		—		(421)
Balance, end of period	$	3,169	$	23,775	$	26,944	$	24,514	$	17,704	$	42,218

	Six months ended June 30,
	2023						2022
(In thousands)	Severance		Contract Termination		Total		Severance (1)		Contract Termination		Total
Balance, beginning of period	$	7,583	$	30,362	$	37,945	$	10,835	$	—	$	10,835
Additions charged to expense	8,184		—		8,184		34,779		17,704		52,483
Cash payments	(11,538)		—		(11,538)		(16,795)		—		(16,795)
Other	(1,060)		(6,587)		(7,647)		(4,305)		—		(4,305)
Balance, end of period	$	3,169	$	23,775	$	26,944	$	24,514	$	17,704	$	42,218

(1)Other reflects the release of $4.3 million from the Company's severance accrual, as the Company re-evaluated its strategic priorities as a combined organization in connection with the Sterling merger, which resulted in modifications to the Company's strategic initiatives that were previously announced in December 2020.