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WEBSTER FINANCIAL CORPORATION

(WBS)
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WEBSTER FINANCIAL CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/05/2022 | 03:25pm EDT

Introduction


This discussion and analysis provides information that management believes is
necessary to understand Webster's financial condition, changes in financial
condition, results of operations, and cash flows for the three and six months
ended June 30, 2022, as compared to 2021. The following should be read in
conjunction with the Company'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 Part I - Item 1. Financial Statements.
The results of operations for the three and six months ended June 30, 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.

Business Developments


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 June 30,
2022, the combined company had $67.6 billion in assets, $45.6 billion in loans
and leases, and $53.1 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's and Sterling's operations depends on the
Company's ability to successfully consolidate business operations, management
teams, corporate cultures, operating systems, and controls procedures, and
eliminate costs and redundancies. Noteworthy accomplishments as of June 30,
2022, include the rebranding of branches and digital assets, the coordination of
credit policies and procedures, the selection of certain key operating systems
and the completed consolidation of mortgage servicing, payroll, and treasury
platforms, the finalization of governance and executive management structures,
the establishment of a corporate responsibility office to oversee community
engagement, philanthropy, and sustainability, and the launch of culture-shaping
offsite workshops, which have been attended by the Company's senior leaders and
managers, with a planned rollout to the entirety of employees in the second half
of 2022. Key operating systems and process integration activities are ongoing,
and Webster remains well-positioned to successfully execute its core conversion
targeted for mid-2023.

In addition, during the second quarter of 2022, Webster developed and launched a
corporate real estate consolidation strategy, in which the Company has arranged
to close 14 locations, primarily throughout New York and Connecticut, in order
to reduce its corporate facility square footage by approximately 45% by the end
of the year. During the three months ended June 30, 2022, Webster recognized
$23.1 million in right-of-use (ROU) asset impairment charges and a combined $7.7
million in related exist costs and accelerated depreciation on property and
equipment, related to this corporate real estate consolidation strategy.

Furthermore, 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 $4.1 million from its previously recorded
severance accrual during the first half of 2022, with a corresponding adjustment
to earnings.

                                       1
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Additional information regarding Webster's mergers and acquisitions and related
integration initiatives can be found within Note 2: Mergers and Acquisitions in
the Notes to Condensed Consolidated Financial Statements contained in Part I -
Item 1. Financial Statements.

Results of Operations


The following table summarizes selected financial highlights and key performance
indicators:
                                                      At or for the three months ended June        At or for the six months ended June
                                                                       30,                                         30,
(In thousands, except per share and ratio data)             2022                  2021                  2022                  2021
Income and performance ratios:
Net income                                            $    182,311           $    94,035          $    165,564           $   202,113
Net income available to common shareholders                178,148                92,066               157,970               198,175
Earnings per diluted common share                             1.00                  1.01                  0.97                  2.19
Return on average assets (annualized)                         1.10   %              1.12  %               0.55   %              1.21  %
Return on average tangible common shareholders'
equity (annualized) (non-GAAP)                               14.50                 14.26                  7.11                 15.51
Return on average common shareholders' equity                 9.09                 11.63                  4.42                 12.63

(annualized)

Non-interest income / total revenue                          19.90                 24.77                 20.34                 25.16
Asset quality:
Allowance for credit losses on loans and leases       $    571,499           $   307,945          $    571,499           $   307,945
Non-performing assets (1)                                  250,242               123,497               250,242               123,497
Allowance for credit losses on loans and leases /             1.25   %              1.43  %               1.25   %              1.43  %
total loans and leases
Net charge-offs (recoveries) / average loans and              0.09                 (0.02)                 0.09                  0.04
leases (annualized)
Non-performing loans and leases / total loans and             0.54                  0.56                  0.54                  0.56
leases (1)
Non-performing assets / total loans and leases plus           0.55                  0.57                  0.55                  0.57
OREO (1)
Allowance for credit losses on loans and leases /
non-performing loans and leases (1)                         230.88                255.05                230.88                255.05
Other ratios:
Tangible equity (non-GAAP)                                    8.12   %              8.35  %               8.12   %              8.35  %
Tangible common equity (non-GAAP)                             7.68                  7.91                  7.68                  7.91
Tier 1 risk-based capital                                    11.65                 12.30                 11.65                 12.30
Total risk-based capital                                     13.91                 13.70                 13.91                 13.70
CET1 risk-based capital                                      11.09                 11.66                 11.09                 11.66
Shareholders' equity / total assets                          11.83                  9.86                 11.83                  9.86
Net interest margin                                           3.28                  2.82                  3.24                  2.87
Efficiency ratio (non-GAAP)                                  45.25                 56.64                 46.82                 57.56
Equity and share related:
Common equity                                         $  7,713,809           $ 3,184,668          $  7,713,809           $ 3,184,668
Book value per common share                                  43.82                 35.15                 43.82                 35.15
Tangible book value per common share (non-GAAP)              28.31                 28.99                 28.31                 28.99
Common stock closing price                                   42.15                 53.34                 42.15                 53.34
Dividends and equivalents declared per common share           0.40                  0.40                  0.80                  0.80
Common shares outstanding                                  176,041                90,594               176,041                90,594

Weighted-average common shares outstanding - basic 175,845

       90,027               161,698                89,918

Weighted-average common shares outstanding - diluted 175,895

       90,221               161,785                90,164


(1)Non-performing asset balances and related asset quality ratios exclude the impact of net unamortized (discounts)/premiums and net unamortized deferred (costs)/fees on loans and leases.

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 that 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 Webster's capital position.
The annualized return

                                       2
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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.

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 June 30,
(Dollars and shares in thousands, except per share data)                2022                  2021
Tangible book value per common share:
Shareholders' equity                                               $  7,997,788          $  3,329,705
Less: Preferred stock                                                   283,979               145,037
     Goodwill and other intangible assets                             2,729,551               558,485
Tangible common shareholders' equity                               $  4,984,258          $  2,626,183
Common shares outstanding                                               176,041                90,594
Tangible book value per common share                               $      

28.31 $ 28.99


Tangible common equity ratio:
Tangible common shareholders' equity                               $  4,984,258          $  2,626,183
Total assets                                                         67,595,021            33,753,752
Less: Goodwill and other intangible assets                            2,729,551               558,485
Tangible assets                                                    $ 64,865,470          $ 33,195,267
Tangible common equity ratio                                               7.68  %               7.91  %


                                       3
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                                                  Three months ended June 30,                  Six months ended June 30,
(Dollars in thousands)                             2022                   2021                 2022                  2021
Return on average tangible common
shareholders' equity:
Net income                                   $      182,311          $    94,035          $    165,564          $   202,113
Less: Preferred stock dividends                       4,163                1,969                 7,594                3,938
Add: Intangible assets amortization,                  6,954                  894                11,999                1,794

tax-effected

Income adjusted for preferred stock
dividends
and intangible assets amortization           $      185,102          $    92,960          $    169,969          $   199,969
Income adjusted for preferred stock
dividends
and intangible assets amortization
(annualized)                                 $      740,408          $   

371,840 $ 339,938 $ 399,938 Average shareholders' equity

                 $    8,125,518          $ 

3,311,406 $ 7,412,465 $ 3,282,962 Less: Average preferred stock

                       283,979              145,037               260,183              145,037
 Average goodwill and other intangible            2,733,827              559,032             2,372,554              559,599

assets

Average tangible common shareholders' equity $ 5,107,712 $ 2,607,337 $ 4,779,728 $ 2,578,326 Return on average tangible common

                     14.50  %             14.26  %               7.11  %             15.51  %
shareholders' equity

Efficiency ratio:
Non-interest expense                         $      358,227          $  

187,028 $ 718,012 $ 375,010 Less: Foreclosed property activity

                     (358)                (137)                 (433)                 (46)
 Intangible assets amortization                       8,802                1,132                15,189                2,271
Operating lease depreciation                          2,425                    -                 4,057                    -
 Merger-related expenses                             66,640               17,047               175,135               17,047
Other expense (1)                                      (152)               1,138                (4,292)              10,579
Non-interest expense                         $      280,870          $   

167,848 $ 528,356 $ 345,159 Net interest income

                          $      486,660          $   

220,852 $ 880,908 $ 444,616 Add: Tax-equivalent adjustment

                       11,732                2,487                19,890                4,982
 Non-interest income                                120,933               72,702               224,968              149,459
 Other income (2)                                     3,805                  309                 6,887                  586

Less: Operating lease depreciation                    2,425                    -                 4,057                    -
Income                                       $      620,705          $   296,350          $  1,128,596          $   599,643
Efficiency ratio                                      45.25  %             56.64  %              46.82  %             57.56  %

(1)Other expense (non-GAAP) includes the net charges associated with the strategic initiatives announced in December 2020.

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

                                       4
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Net Interest Income


Net interest income is Webster's primary source of revenue, representing 80.1%
and 79.7% of total revenue for the three and six months ended June 30, 2022,
respectively, and 75.2% and 74.8% of total revenue for the three and six months
ended June 30, 2021, respectively. Net interest income 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.

Comparison to Prior Year Quarter


Net interest income increased $265.8 million, or 120.4%, from $220.9 million for
the three months ended June 30, 2021, to $486.7 million for the three months
ended June 30, 2022. On a fully tax-equivalent basis, net interest income
increased $275.1 million. Net interest margin increased 46 basis points from
2.82% for the three months ended June 30, 2021, to 3.28% for the three months
ended June 30, 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 $28.5 billion, or 90.0%, from $31.6
billion for the three months ended June 30, 2021, to $60.1 billion for the three
months ended June 30, 2022, primarily due to increases of $22.7 billion and $6.4
billion in average loans and leases and average total investment securities,
respectively, which were partially offset by a $0.8 billion decrease in average
interest-bearing deposits held at the Federal Reserve Bank (FRB). The average
yield on interest-earning assets increased 51 basis points from 2.95% for the
three months ended June 30, 2021, to 3.46% for the three months ended June 30,
2022. The increase in interest-earning assets and the increase in average yield
were both impacted by the Sterling merger.

Average loans and leases increased $22.7 billion, or 106.0%, from $21.4 billion
for the three months ended June 30, 2021, to $44.1 billion for the three months
ended June 30, 2022, which was primarily due to the merger with Sterling, as
well as loan growth across the commercial non-mortgage and commercial real
estate categories. This growth was partially offset by lower Paycheck Protection
Program (PPP) loan balances. At June 30, 2022, and 2021, the loan and lease
portfolio comprised 73.5% and 67.8% of total average interest-earning assets,
respectively. The average yield on loans and leases increased 46 basis points
from 3.46% for the three months ended June 30, 2021, to 3.92% for the three
months ended June 30, 2022, primarily due to a higher yield on the acquired
Sterling loans and leases, net purchase accounting accretion, and higher market
rates.

Average total investment securities increased $6.4 billion, or 71.7%, from $8.8
billion for the three months ended June 30, 2021, to $15.2 billion for the three
months ended June 30, 2022, primarily due to the merger with Sterling. At
June 30, 2022, and 2021, the investment securities portfolio comprised 25.3% and
28.0% of total average interest-earning assets, respectively. The average yield
on investment securities increased 9 basis points from 2.13% for the three
months ended June 30, 2021, to 2.22% for the three months ended June 30, 2022.
The increase was primarily due to the rising interest rate environment and a
higher yield on the acquired Sterling investment securities portfolio net of
purchase premium amortization.

Average interest-bearing deposits held at the FRB decreased $0.8 billion, or
61.5%, from $1.3 billion for the three months ended June 30, 2021, to $0.5
billion for the three months ended June 30, 2022, primarily due to excess
customer liquidity in the prior period as a result of government stimulus and
reduced spending. At June 30, 2022, and 2021, interest-bearing deposits held at
the FRB comprised 0.81% and 4.02% of total average interest-earning assets,
respectively. The average yield on interest-bearing deposits held at the FRB
increased 68 basis points from 0.11% for the three months ended June 30, 2021,
to 0.79% for the three months ended June 30, 2022, primarily due to higher
market rates.

Average interest-bearing liabilities increased $26.8 billion, or 89.5%, from
$29.9 billion for the three months ended June 30, 2021, to $56.7 billion for the
three months ended June 30, 2022, primarily due to increases of $24.7 billion,
$0.5 billion, $1.1 billion, and $0.5 billion, in average total deposits, average
federal funds purchased, average Federal Home Loan Bank (FHLB) advances, and
average long-term debt, respectively. The average rate on interest-bearing
liabilities increased 5 basis points from 0.14% for the three months ended June
30, 2021, to 0.19% for the three months ended June 30, 2022, primarily due to
the subordinated debt assumed from Sterling in the merger and the purchase of
federal funds in the current period, which were partially offset by customer
preferences to hold more liquid, lower cost deposit products.

                                       5
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Average total deposits increased $24.7 billion, or 86.0%, from $28.7 billion for
the three months ended June 30, 2021, to $53.4 billion for the three months
ended June 30, 2022, reflecting increases of $6.6 billion and $18.1 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 both commercial and consumer customers,
and HSA growth. At June 30, 2022, and 2021, deposits comprised 94.2% and 96.0%
of total average interest-bearing liabilities, respectively. The average rate on
deposits increased 2 basis points from 0.07% for the three months ended June 30,
2021, to 0.09% for the three months ended June 30, 2022, primarily due to the
rising interest rate environment, which was partially offset by the run-off of
time deposits. Time deposits as a percentage of total interest-bearing deposits
decreased from 9.6% for the three months ended June 30, 2021, to 6.7% for the
three months ended June 30, 2022, primarily due to customer preferences to hold
more liquid, lower cost deposit products.

Average federal funds purchased were $0.5 billion for the three months ended
June 30, 2022, and had an average rate of 0.93%. There were no average federal
funds purchased for the three months ended June 30, 2021. At June 30, 2022,
federal funds purchased comprised 0.94% of total average interest-bearing
liabilities.

Average FHLB advances increased $1.1 billion, or 735.1%, from $0.1 billion for
the three months ended June 30, 2021 to $1.2 billion for the three months ended
June 30, 2022, primarily due to short-term funding needs. At June 30, 2022, and
2021, FHLB advances comprised 2.04% and 0.46% of total average interest-bearing
liabilities, respectively. The average rate on FHLB advances decreased 44 basis
points from 1.52% for the three months ended June 30, 2021, to 1.08% for the
three months ended June 30, 2022, primarily due to market rates on new
borrowings.

Average long-term debt increased $0.5 billion, or 90.4%, from $0.6 billion for
the three months ended June 30, 2021, to $1.1 billion for the three months ended
June 30, 2022, primarily due to the merger with Sterling. At both June 30, 2022
and 2021, long-term debt comprised 1.9% of total average interest-bearing
liabilities. The average rate on long-term debt increased 16 basis points from
3.22% for the three months ended June 30, 2021, to 3.38% for the three months
ended June 30, 2022, primarily due to the subordinated debt assumed from
Sterling in the merger.

Comparison to Prior Year to Date


Net interest income increased $436.3 million, or 98.1%, from $444.6 million for
the six months ended June 30, 2021, to $880.9 million for the six months ended
June 30, 2022. On a fully tax-equivalent basis, net interest income increased
$451.2 million. Net interest margin increased 37 basis points from 2.87% for the
six months ended June 30, 2021, to 3.24% for the six months ended June 30, 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 $23.8 billion, or 76.0%, from $31.4
billion for the six months ended June 30, 2021, to $55.2 billion for the six
months ended June 30, 2022, primarily due to increases of $18.6 billion and $5.4
billion in average loans and leases and average total investment securities,
respectively. The average yield on interest-earning assets increased 39 basis
points from 3.01% for the six months ended June 30, 2021, to 3.40% for the six
months ended June 30, 2022. The increase in interest-earning assets and the
increase in average yield were both impacted by the Sterling merger.

Average loans and leases increased $18.6 billion, or 86.7%, from $21.4 billion
for the six months ended June 30, 2021, to $40.0 billion for the six months
ended June 30, 2022, which was primarily due to the merger with Sterling, as
well as loan growth across the commercial non-mortgage and commercial real
estate categories. This growth was partially offset by lower PPP loan balances.
At June 30, 2022, and 2021, the loan and lease portfolio comprised 72.5% and
68.4% of total average interest-earning assets, respectively. The average yield
on loans and leases increased 40 basis points from 3.51% for the six months
ended June 30, 2021, to 3.91% for the six months ended June 30, 2022, primarily
due to a higher yield on the acquired Sterling loans and leases, net purchase
accounting accretion, and higher market rates.

Average total investment securities increased $5.4 billion, or 61.3%, from $8.9
billion for the six months ended June 30, 2021, to $14.3 billion for the six
months ended June 30, 2022, primarily due to the merger with Sterling, as well
as the deployment of excess liquidity. At June 30, 2022, and 2021, the
investment securities portfolio comprised 25.9% and 28.2% of total average
interest-earning assets, respectively. The average yield on investment
securities decreased 1 basis points from 2.13% for the six months ended June 30,
2021, to 2.12% for the six months ended June 30, 2022. This was primarily due to
the reinvestment of maturing securities at lower yields.

Average interest-bearing liabilities increased $22.3 billion, or 75.3%, from
$29.7 billion for the six months ended June 30, 2021, to $52.0 billion for the
six months ended June 30, 2022, primarily due to increases of $21.2 billion,
$0.3 billion, $0.5 billion, and $0.4 billion in average total deposits, average
federal funds purchased, average FHLB advances, and average long-term debt,
respectively. The average rate on interest-bearing liabilities increased 1 basis
point from 0.15% for the six months ended June 30, 2021, to 0.16% for the six
months ended June 30, 2022, primarily due to higher market interest rates and
the mix of funding sources.


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Average total deposits increased $21.2 billion, or 74.3%, from $28.5 billion for
the six months ended June 30, 2021, to $49.7 billion for the six months ended
June 30, 2022, reflecting increases of $5.7 billion and $15.4 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, and
HSA growth. At June 30, 2022, and 2021, deposits comprised 95.4% and 95.9% of
total average interest-bearing liabilities, respectively. The average rate on
deposits remained flat at 0.08% for the six months ended June 30, 2022, and
2021. Time deposits as a percentage of total interest-bearing deposits decreased
from 10.3% for the six months ended June 30, 2021, to 7.0% for the six months
ended June 30, 2022, primarily due to customer preferences to hold more liquid,
lower cost deposit products.

Average federal funds purchased increased $0.3 billion, or 731.0%, from $32.3
million for the six months ended June 30, 2021, to $0.3 billion for the six
months ended June 30, 2022, primarily due to short-term funding needs. At
June 30, 2022, and 2021, federal funds purchased comprised 0.52% and 0.11% of
total average interest-bearing liabilities, respectively. The average rate on
federal funds purchased increased 85 basis points from 0.08% for the six months
ended June 30, 2021, to 0.93% for the six months ended June 30, 2022, primarily
due to market interest rates.

Average FHLB advances increased $0.5 billion, or 327.92%, from $0.1 billion for
the six months ended June 30, 2021, to $0.6 billion for the six months ended
June 30, 2022, primarily due short-term funding needs. At June 30, 2022, and
2021, FHLB advances comprised 1.1% and 0.5% of total average interest-bearing
liabilities, respectively. The average rate on FHLB advances decreased 43 basis
points from 1.52% for the six months ended June 30, 2021, to 1.09% for the six
months ended June 30, 2022, primarily due to the maturity of borrowings with
higher yields.

Average long-term debt increased $0.4 billion, or 74.3%, from $0.6 billion for
the six months ended June 30, 2021, to $1.0 billion for the six months ended
June 30, 2022, primarily due to the merger with Sterling. At both June 30, 2022,
and 2021, long-term debt comprised 1.9% of total average interest-bearing
liabilities. The average rate on long-term debt increased 14 basis points from
3.22% for the six months ended June 30, 2021, to 3.36% for the six months ended
June 30, 2022, primarily due to the subordinated debt assumed from Sterling in
the merger.

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The following tables present daily average balances, interest, yield/rate, and net interest margin on a fully tax-equivalent basis:

                                                                                                        Three months ended June 30,
                                                                                    2022                                                          2021
                                                               Average          Interest                                     Average          Interest
(Dollars in thousands)                                         Balance       Income/Expense    Average Yield/Rate            Balance       

Income/Expense Average Yield/Rate

Assets
Interest-earning assets:
Loans and leases (1)                                       $ 44,120,698    $        436,462                3.92  %       $ 21,413,439    $        186,681                3.46  %
Investment securities: (2)
Taxable                                                      12,573,908              73,294                2.27             8,106,310              41,299                2.06
Non-taxable                                                   2,591,606              12,664                1.95               728,549               5,283                2.90
Total investment securities                                  15,165,514              85,958                2.22             8,834,859              46,582                2.13
FHLB and FRB stock                                              262,695               2,072                3.16                77,292                 382                1.98
Interest-bearing deposits (3)                                   488,870                 980                0.79             1,270,121                 347                0.11

Loans held for sale                                              18,172                   7                0.15                 8,898                  53                2.37
Total interest-earning assets                                60,055,949    $        525,479                3.46  %         31,604,609    $        234,045                2.95  %
Non-interest-earning assets                                   6,016,193                                                     1,901,412
Total assets                                               $ 66,072,142                                                  $ 33,506,021

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits                                            $ 13,395,942    $              -                   -  %       $  6,774,206    $              -                   -  %
Health savings accounts                                       7,812,313               1,125                0.06             7,446,735               1,650                0.09

Interest-bearing checking, money market and savings 29,486,846

         10,165                0.14            12,365,074               1,603                0.05
Time deposits                                                 2,684,914               1,169                0.17             2,114,889               1,841                0.35
Total deposits                                               53,380,015              12,459                0.09            28,700,904               5,094                0.07

Securities sold under agreements to repurchase                  529,786               1,423                1.06               500,638                 860                0.68
Federal funds purchased                                         534,518               1,254                0.93                     -                   -                   -

FHLB advances                                                 1,156,449               3,164                1.08               138,483                 534                1.52
Long-term debt (2)                                            1,077,395               8,787                3.38               565,874               4,218                3.22
Total borrowings                                              3,298,148              14,628                1.79             1,204,995               5,612                1.93
Total interest-bearing liabilities                           56,678,163    $         27,087                0.19  %         29,905,899    $         10,706                0.14  %
Non-interest-bearing liabilities                              1,268,461                                                       288,716
Total liabilities                                            57,946,624                                                    30,194,615

Preferred stock                                                 283,979                                                       145,037
Common shareholders' equity                                   7,841,539                                                     3,166,369
Total shareholders' equity                                    8,125,518                                                     3,311,406
Total liabilities and shareholders' equity                 $ 66,072,142                                                  $ 33,506,021
Tax-equivalent net interest income                                         $        498,392                                              $        

223,339

Less: Tax-equivalent adjustments                                                    (11,732)                                                       (2,487)
Net interest income                                                        $        486,660                                              $        220,852
Net interest margin (4)                                                                                    3.28  %                                                       2.82  %

(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 de-designated 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.

                                       8
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                                                                                                         Six months ended June 30,
                                                                                    2022                                                          2021
                                                               Average          Interest                                     Average          Interest
(Dollars in thousands)                                         Balance       Income/Expense    Average Yield/Rate            Balance       

Income/Expense Average Yield/Rate

Assets
Interest-earning assets:
Loans and leases (1)                                       $ 40,039,437    $        785,879                3.91  %       $ 21,447,192    $        377,969                3.51  %
Investment securities: (2)
Taxable                                                      12,020,675             130,761                2.15             8,129,404              82,243                2.06
Non-taxable                                                   2,277,672              22,466                1.97               732,910              10,616                2.90
Total investment securities                                  14,298,347             153,227                2.12             8,862,314              92,859                2.13
FHLB and FRB stock                                              214,792               2,893                2.72                77,461                 619                1.61
Interest-bearing deposits (3)                                   643,210               1,433                0.44               976,873                 523                0.11

Loans held for sale                                              18,046                  33                0.36                11,610                 144                2.48
Total interest-earning assets                                55,213,832    $        943,465                3.40  %         31,375,450    $        472,114                3.01  %
Non-interest-earning assets                                   5,257,642                                                     1,941,640
Total assets                                               $ 60,471,474                                                  $ 33,317,090

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits                                            $ 12,335,504    $              -                   -  %       $  6,606,464    $              -                   -  %
Health savings accounts                                       7,786,035               2,212                0.06             7,448,943               3,257                0.09

Interest-bearing checking, money market and savings 26,915,923

         15,184                0.11            12,181,295               3,323                0.06
Time deposits                                                 2,614,989               2,462                0.19             2,242,250               4,953                0.45
Total deposits                                               49,652,451              19,858                0.08            28,478,952              11,533                0.08

Securities sold under agreements to repurchase                  553,282               2,379                0.86               479,285               1,482                0.61
Federal funds purchased                                         268,735               1,254                0.93                32,337                  13                0.08
Other borrowings                                                      -                   1                   -                     -                   -                   -
FHLB advances                                                   586,857               3,220                1.09               137,143               1,047                1.52
Long-term debt (2)                                              987,353              15,955                3.36               566,462               8,441                3.22
Total borrowings                                              2,396,227              22,809                1.93             1,215,227              10,983                1.87
Total interest-bearing liabilities                           52,048,678    $         42,667                0.16  %         29,694,179    $         22,516                0.15  %
Non-interest-bearing liabilities                              1,010,331                                                       339,949
Total liabilities                                            53,059,009                                                    30,034,128

Preferred stock                                                 260,183                                                       145,037
Common shareholders' equity                                   7,152,282                                                     3,137,925
Total shareholders' equity                                    7,412,465                                                     3,282,962
Total liabilities and shareholders' equity                 $ 60,471,474                                                  $ 33,317,090
Tax-equivalent net interest income                                         $        900,798                                              $        

449,598

Less: Tax-equivalent adjustments                                                    (19,890)                                                       (4,982)
Net interest income                                                        $        880,908                                              $        444,616
Net interest margin (4)                                                                                    3.24  %                                                       2.87  %

(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 de-designated 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.




                                       9
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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 June 30,                   Six months ended June 30,
                                                    2022 vs. 2021                                2022 vs. 2021
                                              Increase (decrease) due to                   Increase (decrease) due to
(In thousands)                            Rate (1)      Volume       Total             Rate (1)      Volume       Total
Interest on interest-earning assets:
Loans and leases                        $  97,892    $ 151,889    $ 249,781          $ 158,127    $ 249,784    $ 407,911
Investment securities                       9,481       29,895       39,376              8,976       51,392       60,368

FHLB and FRB stock                            774          915        1,689              1,177        1,097        2,274
Interest bearing-deposits                     847         (214)         633              1,089         (179)         910
Loans held for sale                            10          (56)         (46)                 5         (116)        (111)
Total interest income                   $ 109,004    $ 182,429    $ 291,433          $ 169,374    $ 301,978    $ 471,352
Interest on interest-bearing
liabilities:

Health savings accounts                 $    (606)   $      81    $   

(525) $ (1,193) $ 147 $ (1,046) Interest-bearing checking, money

            8,464           99        8,563             11,471          391       11,862
market, and savings
Time deposits                                (232)        (441)        (673)            (1,254)      (1,237)      (2,491)
Securities sold under agreements to           514           50          564                669          229          898
repurchase
Federal funds purchased                     1,254            -        1,254              1,147           95        1,242
Other borrowings                                -            -            -                  1            -            1
FHLB advances                              (1,289)       3,920        2,631             (1,260)       3,433        2,173
Long-term debt                                445        4,121        4,566                728        6,785        7,513
Total interest expense                  $   8,550    $   7,830    $  16,380          $  10,309    $   9,843    $  20,152
Net change in net interest income       $ 100,454    $ 174,599    $ 275,053 

$ 159,065 $ 292,135 $ 451,200

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

Provision for Credit Losses

Comparison to Prior Year Quarter


The provision for credit losses increased $33.7 million, or 156.9%, from a
benefit of $21.5 million for the three months ended June 30, 2021, to an expense
of $12.2 million for the three months ended June 30, 2022. The increase is
primarily attributed to the release of reserves in the prior period as a result
of improvements in the forecasted economic outlook and favorable credit trends
at June 30, 2021, as the COVID-19 pandemic receded. During the three months
ended June 30, 2022, and 2021, total net charge-offs (recoveries) were $9.6
million and $(1.2) million, respectively. The $10.8 million increase is
primarily attributed to an increase in net charge-offs in the commercial
non-mortgage, commercial real estate, and home equity categories, due to
favorable credit performance in the prior period, as the economy benefited from
the support of federal stimulus programs.

Comparison to Prior Year to Date


The provision for credit losses increased $248.4 million, or 525.6%, from a
benefit of $47.3 million for the six months ended June 30, 2021, to an expense
of $201.1 million for the six months ended June 30, 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, as well as organic loan growth. During the six months ended June
30, 2022, and 2021, total net charge-offs were $18.5 million and $4.2 million,
respectively. The $14.3 million increase is primarily attributed to an increase
in net charge-offs in the commercial non-mortgage category, partially offset by
a decrease in net charge-offs in the commercial real estate and other consumer
categories, due to favorable credit performance in the prior period, as the
economy benefited from the support of federal stimulus programs.

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 Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

                                       10
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Non-Interest Income

                                                                                              Six months ended June
                                                 Three months ended June 30,                           30,
(Dollars in thousands)                              2022                 2021                        2022               2021
Deposit service fees                         $        51,385          $ 41,439                   $  99,212          $  81,908
Loan and lease related fees                           27,907             7,862                      50,586             16,175
Wealth and investment services                        11,244            10,087                      21,841             19,490
Mortgage banking activities                              102             1,319                         530              3,961
Increase in cash surrender value of life               8,244             3,603                      14,976              7,136
insurance policies

Other income                                          22,051             8,392                      37,823             20,789
Total non-interest income                    $       120,933          $ 72,702                   $ 224,968          $ 149,459


Comparison to Prior Year Quarter


Total non-interest income increased $48.2 million, or 66.3%, from $72.7 million
for the three months ended June 30, 2021 to $120.9 million for the three months
ended June 30, 2022, due to increases in deposit service fees, loan and lease
related fees, wealth and investment services, the cash surrender value of life
insurance policies, and other income, the majority of which were primarily
driven by the merger with Sterling, partially offset by a decrease in mortgage
banking activities.

Deposit service fees increased $10.0 million, or 24.0%, from $41.4 million for
the three months ended June 30, 2021 to $51.4 million for the three months ended
June 30, 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 $20.0 million, or 255.0%, from $7.9
million for the three months ended June 30, 2021 to $27.9 million for the three
months ended June 30, 2022, primarily due to the merger with Sterling, which
included $3.1 million of operating lease income, as well as an increase in
prepayment penalties, syndication fees, and other loan related fees.

Wealth and investment services increased $1.1 million, or 11.5%, from $10.1 million for the three months ended June 30, 2021 to $11.2 million for the three months ended June 30, 2022, primarily due to the merger with Sterling.


Mortgage banking activities decreased $1.2 million, or 92.3%, from $1.3 million
for the three months ended June 30, 2021 to $0.1 million for the three months
ended June 30, 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 $4.6 million, or 128.8%, from $3.6 million for the three months ended June 30, 2021 to $8.2 million for the three months ended June 30, 2022, primarily due to the additional bank-owned life insurance policies acquired in the merger with Sterling.


Other income increased $13.7 million, or 162.8%, from $8.4 million for the three
months ended June 30, 2021 to $22.1 million for the three months ended June 30,
2022, primarily due to higher income from client interest rate derivative
activities.

Comparison to Prior Year to Date


Total non-interest income increased $75.5 million, or 50.5%, from $149.5 million
for the six months ended June 30, 2021 to $225.0 million for the six months
ended June 30, 2022, due to increases in deposit service fees, loan and lease
related fees, wealth and investment services, the cash surrender value of life
insurance policies, and other income, the majority of which were primarily
driven by the merger with Sterling, partially offset by a decrease in mortgage
banking activities.

Deposit service fees increased $17.3 million, or 21.1%, from $81.9 million for
the six months ended June 30, 2021 to $99.2 million for the six months ended
June 30, 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 $34.4 million, or 212.7%, from $16.2 million for the six months ended June 30, 2021 to $50.6 million for the six months ended June 30, 2022, primarily due to the merger with Sterling, which included $5.3 million of operating lease income, as well as an increase in prepayment penalties, syndication fees, and other loan related fees.

Wealth and investment services increased $2.3 million, or 12.1%, from $19.5 million for the six months ended June 30, 2021 to $21.8 million for the six months ended June 30, 2022, primarily due to the merger with Sterling.


Mortgage banking activities decreased $3.5 million, or 86.6%, from $4.0 million
for the six months ended June 30, 2021 to $0.5 million for the six months ended
June 30, 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 $7.9 million, or
109.9%, from $7.1 million for the six months ended June 30, 2021 to $15.0
million for the six months ended June 30, 2022, primarily due to the additional
bank-owned life insurance policies acquired in the merger with Sterling.

                                       11
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Other income increased $17.0 million, or 81.9%, from $20.8 million for the six
months ended June 30, 2021 to $37.8 million for the six months ended June 30,
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.

Non-Interest Expense

                                                                                              Six months ended June
                                                 Three months ended June 30,                           30,
(Dollars in thousands)                             2022                  2021                        2022               2021
Compensation and benefits                    $      187,656          $  97,754                   $ 371,658          $ 205,354
Occupancy                                            51,593             14,010                      70,208             29,660
Technology and equipment                             41,498             27,124                      96,899             55,640
Intangible assets amortization                        8,802              1,132                      15,189              2,271
Marketing                                             3,441              3,227                       6,950              5,731
Professional and outside services                    15,332             21,025                      69,423             30,801
Deposit insurance                                     6,748              3,749                      11,970              7,705
Other expense                                        43,157             19,007                      75,715             37,848
Total non-interest expense                   $      358,227          $ 187,028                   $ 718,012          $ 375,010


Comparison to Prior Year Quarter


Total non-interest expense increased $171.2 million, or 91.5%, from $187.0
million for the three months ended June 30, 2021 to $358.2 million for the three
months ended June 30, 2022, primarily due to increases in compensation and
benefits, occupancy, technology and equipment, intangible assets amortization,
deposit insurance, and other expense, all of which were primarily driven by the
merger with Sterling, partially offset by a decrease in professional and outside
services.

Compensation and benefits increased $89.9 million, or 92.0%, from $97.8 million
for the three months ended June 30, 2021 to $187.7 million for the three months
ended June 30, 2022, primarily due to a $23.7 million increase in merger-related
expenses, particularly as it relates to severance, retention, and executive
synergy stock awards, and higher salaries and incentives related to the increase
in employees as a result of the merger.

Occupancy increased $37.6 million, or 268.3%, from $14.0 million for the three
months ended June 30, 2021 to $51.6 million for the three months ended June 30,
2022, primarily due to the Company's consolidation plan to reduce its corporate
facility square footage, which resulted in a $23.1 million ROU asset impairment
charge in the second quarter of 2022, and a combined $7.7 million in related
exit costs and accelerated depreciation on property and equipment, as well as
additional operating lease costs and depreciation related to the acquired
Sterling banking centers and corporate offices.

Technology and equipment increased $14.4 million, or 53.0%, from $27.1 million
for the three months ended June 30, 2021 to $41.5 million for the three months
ended June 30, 2022, primarily due to an increase in technology and equipment
service contracts due to the impact of the merger with Sterling.

Intangible assets amortization increased $7.7 million, or 677.6%, from $1.1
million for the three months ended June 30, 2021 to $8.8 million for the three
months ended June 30, 2022, due to the additional amortization expense related
to the core deposit and customer relationship intangible assets acquired in
connection with the Sterling merger and Bend acquisition.

Professional and outside services decreased $5.7 million, or 27.1%, from $21.0
million for the three months ended June 30, 2021 to $15.3 million for the three
months ended June 30, 2022, primarily due to a $12.5 million decrease in
merger-related expenses, particularly as it relates to advisory, legal, and
consulting fees, partially offset by an increase in professional service costs
due to the impact of the merger with Sterling.

Deposit insurance increased $3.0 million, or 80.0%, from $3.7 million for the
three months ended June 30, 2021 to $6.7 million for the three months ended June
30, 2022, primarily due to an increase in the Company's deposit insurance
assessment base resulting from the merger with Sterling.

Other expense increased $24.2 million, or 127.1%, from $19.0 million for the
three months ended June 30, 2021 to $43.2 million for the three months ended
June 30, 2022, primarily due to an increase in expenses due to the impact of the
merger with Sterling, which included $2.4 million of operating lease
depreciation, and a $6.6 million increase in merger-related expenses,
particularly as it relates to disposals of property and equipment and litigation
costs.

Comparison to Prior Year to Date


Total non-interest expense increased $343.0 million, or 91.5%, from $375.0
million for the six months ended June 30, 2021 to $718.0 million for the six
months ended June 30, 2022, primarily due to increases in compensation and
benefits, occupancy, technology and equipment, intangible assets amortization,
professional and outside services, deposit insurance, and other expense, all of
which were primarily driven by the merger with Sterling.

                                       12
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Compensation and benefits increased $166.3 million, or 81.0%, from $205.4
million for the six months ended June 30, 2021 to $371.7 million for the six
months ended June 30, 2022, primarily due to a $65.2 million increase in
merger-related expenses, particularly as it relates to severance, retention, and
executive synergy stock awards, 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 charges.

Occupancy increased $40.5 million, or 136.7%, from $29.7 million for the six
months ended June 30, 2021 to $70.2 million for the six months ended June 30,
2022, primarily due to the Company's consolidation plan to reduce its corporate
facility square footage, which resulted in a $23.1 million ROU asset impairment
charge in the second quarter of 2022, and a combined $7.7 million in related
exit costs and accelerated depreciation on property and equipment, as well as
additional operating lease costs and depreciation related to the acquired
Sterling banking centers and corporate offices. These increases were partially
offset by a decrease in strategic initiatives charges.

Technology and equipment increased $41.3 million, or 74.2%, from $55.6 million
for the six months ended June 30, 2021 to $96.9 million for the six months ended
June 30, 2022, primarily due to a $19.9 million increase in 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 $12.9 million, or 568.8%, from $2.3
million for the six months ended June 30, 2021 to $15.2 million for the six
months ended June 30, 2022, due to the additional amortization expense related
to the core deposit and customer relationship intangible assets acquired in
connection with the Sterling merger and Bend acquisition.

Professional and outside services increased $38.6 million, or 125.4%, from $30.8
million for the six months ended June 30, 2021 to $69.4 million for the six
months ended June 30, 2022, primarily due to a $32.0 million increase in
merger-related expenses, particularly as it relates to advisory, 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.

Deposit insurance increased $4.3 million, or 55.4%, from $7.7 million for the
six months ended June 30, 2021 to $12.0 million for the six months ended June
30, 2022, primarily due to an increase in the Company's deposit insurance
assessment base resulting from the merger with Sterling.

Other expense increased $37.9 million, or 100.1%, from $37.8 million for the six
months ended June 30, 2021 to $75.7 million for the six months ended June 30,
2022, primarily due to an increase in expenses due to the impact of the merger
with Sterling, which included $4.1 million of operating lease depreciation, and
a $9.6 million increase in merger-related expenses, particularly as it relates
to disposals of property and equipment, litigation costs, and transfer taxes.

Income Taxes

Comparison to Prior Year Quarter


Webster recognized income tax expense of $54.8 million and $34.0 million for the
three months ended June 30, 2022, and 2021, respectively, reflecting effective
tax rates of 23.1% and 26.6%, respectively.

The increase in income tax expense is due to a higher level of pre-tax income
recognized during the three months ended June 30, 2022, resulting from the
impact of the Company's merger with Sterling. The decrease in the effective tax
rate primarily reflects a reduction in merger-related expenses recognized during
the three months ended June 30, 2022, that were estimated to be nondeductible
for income tax purposes, as compared to the three months ended June 30, 2021,
which also reflected a lower level of pre-tax income. The decrease in the
effective tax rate also reflects increased tax-exempt income and tax credits,
partially offset by the effects of a higher level of pre-tax income and rate of
state and local tax (SALT) in 2022 as compared to 2021, resulting from the
merger with Sterling.

Comparison to Prior Year to Date


Webster recognized income tax expense of $21.2 million and $64.2 million for the
six months ended June 30, 2022, and 2021, respectively, reflecting effective tax
rates of 11.4% and 24.1%, respectively.

The decrease in both income tax expense and the effective tax rate primarily
reflects the Company's $50.3 million pre-tax loss recognized during the three
months ended March 31, 2022, which was driven by the one-time charges incurred
as a result of the merger with Sterling. These decreases also reflect the $13.7
million deferred SALT benefit recognized during the three months ended March 31,
2022 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 $28.4 million of merger-related
expenses recognized during the six months ended June 30, 2022 that were
estimated to be nondeductible for income tax purposes, as compared to $16.1
million recognized during the six months ended June 30, 2021.

                                       13
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At June 30, 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 June 30, 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 June 30, 2022, and December 31, 2021,
Webster's gross DTAs included $68.7 million and $64.4 million, respectively,
applicable to SALT net operating loss carryforwards that are available to offset
future taxable income. The $68.7 million at June 30, 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 June 30, 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 June 30, 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 10: 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.

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 16: Segment Reporting in
the Notes to Condensed Consolidated Financial Statements contained in Part I -
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.

                                       14
--------------------------------------------------------------------------------
Commercial Banking

Operating Results:
                                                     Three months ended June 30,                 Six months ended June 30,
(In thousands)                                         2022                  2021                 2022                  2021
Net interest income                              $      333,421          $ 140,589          $      620,490          $ 282,075
Non-interest income                                      49,430             18,378                  88,173             36,754
Non-interest expense                                    102,720             46,275                 191,960             92,559
Pre-tax, pre-provision net revenue               $      280,131          $ 

112,692 $ 516,703 $ 226,270

Comparison to Prior Year Quarter


Commercial Banking's PPNR increased $167.4 million, or 148.6%, for the three
months ended June 30, 2022, as compared to the three months ended June 30, 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 $192.8 million increase in net interest
income is primarily attributed to incremental loan and deposit balances acquired
from Sterling, loan and deposit growth, and higher interest rates. The $31.1
million increase in non-interest income is primarily attributed to incremental
fee income due to the merger, increased client hedging activity, and loan and
lease related fees. The $56.4 million increase in non-interest expense is
primarily attributed to incremental expenses incurred related to the acquired
Sterling commercial business, and costs to support growth within the loan and
deposit portfolios.

Comparison to Prior Year to Date


Commercial Banking's PPNR increased $290.4 million, or 128.4%, for the six
months ended June 30, 2022 as compared to the six months ended June 30, 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 $338.4 million increase in net interest
income is primarily attributed to incremental loan and deposit balances acquired
from Sterling, and loan and deposit growth. The $51.4 million increase in
non-interest income is primarily attributed to incremental fee income due to the
merger, increased client hedging activity, and loan and lease related fees. The
$99.4 million increase in non-interest expense is primarily attributed to
incremental expenses incurred related to the acquired Sterling commercial
business, and costs to support growth within the loan and deposit portfolios.

Selected Balance Sheet and Off-Balance Sheet Information:

© Edgar Online, source Glimpses

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