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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 ending June 30, 2021

or

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

For the transition period from ____ to ____

Commission File Number: 001-31486

_______________________________________________________________________________________

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.)

145 Bank Street, Waterbury, Connecticut 06702

(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 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

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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒  Yes    ☐  No

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

Large Accelerated Filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

The number of shares of common stock, par value $.01 per share, outstanding as of July 30, 2021 was 90,592,291.

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INDEX

						Page No.
Key to Acronyms and Terms						ii
Forward-Looking Statements						iii
PART I – FINANCIAL INFORMATION
Item 1.			Financial Statements			29
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			1
Item 3.			Quantitative and Qualitative Disclosures about Market Risk			69
Item 4.			Controls and Procedures			69
PART II – OTHER INFORMATION
Item 1.			Legal Proceedings			70
Item 1A.			Risk Factors			70
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			71
Item 3.			Defaults Upon Senior Securities			71
Item 4.			Mine Safety Disclosures			71
Item 5.			Other Information			71
Item 6.			Exhibits			72
EXHIBIT INDEX						72
SIGNATURES						73

i

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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
AOCI (AOCL)			Accumulated other comprehensive income (loss)
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
BHC Act			Bank Holding Company Act of 1956, as amended
CARES Act			The Coronavirus Aid, Relief, and Economic Security Act
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
CME			Chicago Mercantile Exchange
COVID-19			Coronavirus
CVA (DVA)			Credit (debit) valuation adjustment
DTA			Deferred tax asset
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
NAV			Net asset value
NII			Net interest income
OCC			Office of the Comptroller of the Currency
OCI (OCL)			Other comprehensive income (loss)
OREO			Other real estate owned
PD			Probability of default
PPNR			Pretax, pre-provision net revenue
ROU			Right-of-use
PPP			Small Business Administration Paycheck Protection Program
SEC			United States Securities and Exchange Commission
SERP			Supplemental executive defined benefit retirement plan
Sterling			Sterling Bancorp, collectively with its consolidated subsidiaries
TDR			Troubled debt restructuring, defined in ASC 310-40 "Receivables - Troubled Debt Restructurings by Creditors"
TPA			Third-party administrator
VIE			Variable interest entity, defined in ASC 810-10 "Consolidation - Overall"
Webster Bank or the Bank			Webster Bank, National Association, a wholly-owned subsidiary of Webster Financial Corporation
Webster or the Company			Webster Financial Corporation, collectively with its consolidated subsidiaries

ii

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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 execute our business plan and strategic initiatives, and manage any risks or uncertainties;

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

▪our ability to complete the merger with Sterling Bancorp (Sterling) and realize the anticipated benefits of the merger;

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

▪volatility and disruption in national and international financial markets;

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

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

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

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

▪the effects of the replacement of LIBOR as an 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 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 social, environmental, 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 the Company’s actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by law.

iii

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PART I – FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Company’s Consolidated Financial Statements, and accompanying Notes thereto, for the year ended December 31, 2020, included in Webster Financial Corporation's Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on February 26, 2021, and in conjunction with the Condensed Consolidated Financial Statements, and accompanying Notes thereto, included in Item 1 of this report. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of results that may be attained during the full year ending December 31, 2021, or any future period.    

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 Waterbury, Connecticut. Webster Bank, National Association (Webster Bank) is the principal consolidated subsidiary of Webster Financial Corporation. Webster Bank, including its HSA Bank division, 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 southern New England and Westchester County, New York. It also offers equipment financing, commercial real estate lending, asset-based lending, and treasury and payment solutions primarily in the eastern U.S. HSA Bank is a leading provider of health savings accounts (HSAs), while also delivering health reimbursement arrangements, and flexible spending and commuter benefit account administration services to employers and individuals in all 50 states.

Pending Merger with Sterling Bancorp

On April 19, 2021, Webster and Sterling, a full-service regional bank headquartered in Pearl River, New York, that primarily serves the Greater New York metropolitan region, announced that their boards of directors approved by unanimous vote a definitive agreement under which the two companies will combine in an all-stock transaction. Under the terms of the agreement, Sterling will merge into Webster, and Sterling's shareholders will receive a fixed exchange ratio of 0.463 of a Webster common share for each share of Sterling common stock owned. In addition, at the effective time of the merger, each outstanding share of Sterling's Series A non-cumulative perpetual preferred stock will be converted into the right to receive a newly created series of Webster preferred stock having substantially the same terms. The merger is expected to close in the fourth quarter of 2021, subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals and approval by the shareholders of Webster and Sterling. Based on the number of shares of both Sterling common stock and Webster common stock outstanding on July 2, 2021, it is estimated that following the completion of the merger, former holders of Webster common stock will own approximately 50.4% of the combined company, and former holders of Sterling common stock will own approximately 49.6% of the combined company.

In connection with the proposed transaction, the Company incurred $17.1 million of merger-related expenses during the three months ended June 30, 2021, primarily consisting of professional fees for investment banking, legal, accounting, and employee retention costs. There were no significant merger-related expenses incurred during the first quarter of 2021.

At June 30, 2021, Sterling reported $29.1 billion in assets, including $4.4 billion in investment securities and $20.7 billion in loans, $24.4 billion in liabilities, including $23.1 billion in deposits, and $4.7 billion in shareholders' equity.

Strategic Initiatives

During the fourth quarter of 2020, the Company launched a strategic plan to drive incremental revenue and cost savings measures across the organization through the consolidation of banking centers and corporate facilities, process automation, ancillary spend reduction, and other organizational actions. As of June 30, 2021, the Company completed all 26 of its announced banking center closures, has progressed on business process automation and ancillary spend reduction, and continues to realize operational efficiencies from the realignment of certain of the Company's business banking and investment services operations across its reportable segments.

Strategic initiative costs incurred during the six months ended June 30, 2021 included $2.1 million in severance due to voluntary terminations, $3.7 million in facilities optimization, and $4.8 million in other project costs. Additional costs will be incurred as the Company continues to manage the strategic plan and further realize operational benefits. The Company anticipates it will reach its expense reduction targets by the end of the fourth quarter of 2021.

Refer to Note 3: Business Developments and Note 17: Segment Reporting in the Notes to the Condensed Consolidated Financial Statements for additional information related to the financial statement impact of the strategic plan, as well as the "Segment Reporting" section contained elsewhere in this report for further details specific to the Company's segment changes.

1

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COVID-19 Update

The COVID-19 pandemic has caused significant disruptions to the United States' economy, affecting banking and other financial activities in the areas in which the Company operates. In conjunction with the easing of restrictions imposed by state and local governments across Webster's footprint, the Company continues to increase its available building capacity in order to allow both employees and customers the opportunity to return to the office and use Webster's banking centers on a regular basis. Health and safety protocols remain in compliance with state and federal guidelines while we continue to monitor the spread of more contagious variants of the virus. Information regarding the effects and potential effects of the ongoing COVID-19 pandemic on Webster's business, operating results, and financial condition is further discussed throughout Item 2.

Results of Operations

Selected financial highlights are presented in the following table:

			At or for the three months ended June 30,												At or for the six months ended June 30,
(In thousands, except per share and ratio data)			2021						2020						2021						2020
Earnings:
Net interest income			$	220,852					$	224,407					$	444,616					$	455,208
Provision for credit losses			(21,500)						40,000						(47,250)						116,000
Total non-interest income			72,702						60,076						149,459						133,454
Total non-interest expense			187,028						176,584						375,010						355,420
Net income			94,035						53,097						202,113						91,296
Earnings applicable to common shareholders			91,555						50,729						197,085						86,766
Share Data:
Weighted-average common shares outstanding - diluted			90,221						89,570						90,164						90,391
Diluted earnings per common share			$	1.01					$	0.57					$	2.19					$	0.96
Dividends and dividend equivalents declared per common share			0.40						0.40						0.80						0.80
Dividends declared per preferred share			328.13						328.13						656.25						656.25
Book value per common share			35.15						33.59						35.15						33.59
Tangible book value per common share (non-GAAP)			28.99						27.40						28.99						27.40
Selected Ratios:
Net interest margin			2.82		%				2.99		%				2.87		%				3.11		%
Return on average assets (annualized basis)			1.12						0.65						1.21						0.58
Return on average common shareholders' equity (annualized basis)			11.63						6.79						12.63						5.77
CET1 risk-based capital			11.66						11.17						11.66						11.17
Tangible common equity ratio (non-GAAP)			7.91						7.69						7.91						7.69
Return on average tangible common shareholders' equity (annualized basis) (non-GAAP)			14.26						8.47						15.51						7.20
Efficiency ratio (non-GAAP)			56.64						60.04						57.56						59.01

The non-GAAP financial measures identified in the preceding table provide both management and investors with information useful in understanding the Company's financial position, operating results, 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 the Company's business and allows investors to view its performance in a similar manner.

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

These non-GAAP financial measures should not be considered a substitute for GAAP (U.S. Generally Accepted Accounting Principles) basis measures and results. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.

2

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The following tables reconcile non-GAAP financial measures with financial measures defined by GAAP:

			At June 30,
(Dollars and shares in thousands, except per share data)			2021						2020
Tangible book value per common share (non-GAAP):
Shareholders' equity (GAAP)			$	3,329,705					$	3,174,779
Less: Preferred stock (GAAP)			145,037						145,037
Goodwill and other intangible assets (GAAP)			558,485						558,367
Tangible common shareholders' equity (non-GAAP)			$	2,626,183					$	2,471,375
Common shares outstanding			90,594						90,194
Tangible book value per common share (non-GAAP)			$	28.99					$	27.40
Tangible common equity ratio (non-GAAP):
Tangible common shareholders' equity (non-GAAP)			$	2,626,183					$	2,471,375
Total assets (GAAP)			33,753,752						32,708,617
Less: Goodwill and other intangible assets (GAAP)			558,485						558,367
Tangible assets (non-GAAP)			$	33,195,267					$	32,150,250
Tangible common equity ratio (non-GAAP)			7.91		%				7.69		%

			Three months ended June 30,												Six months ended June 30,
(Dollars in thousands)			2021						2020						2021						2020
Return on average tangible common shareholders' equity (non-GAAP):
Net income (GAAP)			$	94,035					$	53,097					$	202,113					$	91,296
Less: Preferred stock dividends (GAAP)			1,969						1,969						3,938						3,938
Add: Intangible assets amortization, tax-effected (GAAP)			894						760						1,794						1,520
Income adjusted for preferred stock dividends and intangible assets amortization (non-GAAP)			$	92,960					$	51,888					$	199,969					$	88,878
Income adjusted for preferred stock dividends and intangible assets amortization, annualized (non-GAAP)			$	371,840					$	207,552					$	399,938					$	177,756
Average shareholders' equity (non-GAAP)			$	3,311,406					$	3,155,368					$	3,282,962					$	3,174,446
Less: Average preferred stock (non-GAAP)			145,037						145,037						145,037						145,037
Average goodwill and other intangible assets (non-GAAP)			559,032						558,835						559,599						559,311
Average tangible common shareholders' equity (non-GAAP)			$	2,607,337					$	2,451,496					$	2,578,326					$	2,470,098
Return on average tangible common shareholders' equity (non-GAAP)			14.26		%				8.47		%				15.51		%				7.20		%
Efficiency ratio (non-GAAP):
Non-interest expense (GAAP)			$	187,028					$	176,584					$	375,010					$	355,420
Less: Foreclosed property activity (GAAP)			(137)						(217)						(46)						(467)
Intangible assets amortization (GAAP)			1,132						962						2,271						1,924
Merger-related (non-GAAP)			17,047						—						17,047						—
Strategic initiatives (non-GAAP)			1,138						—						10,579						—
Non-interest expense (non-GAAP)			$	167,848					$	175,839					$	345,159					$	353,963
Net interest income (GAAP)			$	220,852					$	224,407					$	444,616					$	455,208
Add: Tax-equivalent adjustment (non-GAAP)			2,487						2,561						4,982						5,034
Non-interest income (GAAP)			72,702						60,076						149,459						133,454
Other (non-GAAP) (1)			309						5,804						586						6,103
Less: Gain on sale of investment securities, net (GAAP)			—						—						—						8
Income (non-GAAP)			$	296,350					$	292,848					$	599,643					$	599,791
Efficiency ratio (non-GAAP)			56.64		%				60.04		%				57.56		%				59.01		%

(1)Other (non-GAAP) includes low income housing tax credits for all periods and a $5.5 million discrete customer derivative fair value adjustment during the three and six months ended June 30, 2021.

3

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Financial Performance

Comparison to Prior Year Quarter

Net income increased $40.9 million, or 77.1%, from $53.1 million for the three months ended June 30, 2020 to $94.0 million for the three months ended June 30, 2021, primarily due to a $61.5 million decrease in the provision for credit losses, which was partially offset by $18.2 million of merger-related and strategic initiatives charges.

Diluted earnings per common share increased $0.44, or 77.2%, from $0.57 for the three months ended June 30, 2020 to $1.01 for the three months ended June 30, 2021.

The efficiency ratio (non-GAAP) decreased 340 basis points from 60.04% for the three months ended June 30, 2020 to 56.64% for the three months ended June 30, 2021, primarily due to higher HSA interchange and other deposit service fees, increased investment service activity, and cost savings from the Company's strategic initiatives.

Comparison to Prior Year to Date

Net income increased $110.8 million, or 121.4%, from $91.3 million for the six months ended June 30, 2020 to $202.1 million for the six months ended June 30, 2021, primarily due to a $163.3 million decrease in the provision for credit losses, offset by the impact of the net decrease in rates on interest-earning assets and liabilities in addition to $27.6 million of merger-related and strategic initiatives charges.

Diluted earnings per common share increased $1.23, or 128.1%, from $0.96 for the six months ended June 30, 2020 to $2.19 for the six months ended June 30, 2021.

The efficiency ratio (non-GAAP) decreased 145 basis points from 59.01% for the six months ended June 30, 2020 to 57.56% for the six months ended June 30, 2021, primarily due to higher HSA interchange and other deposit service fees, increased investment service activity, and cost savings from the Company's strategic initiatives.

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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,
			2021												2020
(Dollars in thousands)			Average Balance			Interest			Yield/ Rate						Average Balance			Interest			Yield/ Rate
Assets
Interest-earning assets:
Loans and leases			$	21,413,439		$	186,681		3.46		%				$	21,608,914		$	197,317		3.63		%
Investment securities (1)			8,834,859			46,582			2.13						8,579,213			56,465			2.69
FHLB and FRB stock			77,292			382			1.98						108,962			865			3.19
Interest-bearing deposits (2)			1,270,121			347			0.11						99,467			5			0.02
Securities			10,182,272			47,311			1.88						8,787,642			57,335			2.66
Loans held for sale			8,898			53			2.37						24,266			184			3.03
Total interest-earning assets			31,604,609			$	234,045		2.95		%				30,420,822			$	254,836		3.35		%
Non-interest-earning assets			1,901,412												2,062,534
Total assets			$	33,506,021											$	32,483,356
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits			$	6,774,206		$	—		—		%				$	5,823,655		$	—		—		%
Health savings accounts			7,446,735			1,650			0.09						6,846,210			2,604			0.15
Interest-bearing checking, money market and savings			12,365,074			1,603			0.05						10,390,143			6,462			0.25
Time deposits			2,114,889			1,841			0.35						2,869,471			9,739			1.36
Total deposits			28,700,904			5,094			0.07						25,929,479			18,805			0.29
Securities sold under agreements to repurchase and other borrowings			500,638			860			0.68						1,577,881			980			0.25
FHLB advances			138,483			534			1.52						839,830			3,748			1.77
Long-term debt (1)			565,874			4,218			3.22						570,679			4,335			3.31
Total borrowings			1,204,995			5,612			1.93						2,988,390			9,063			1.23
Total interest-bearing liabilities			29,905,899			$	10,706		0.14		%				28,917,869			$	27,868		0.39		%
Non-interest-bearing liabilities			288,716												410,119
Total liabilities			30,194,615												29,327,988
Preferred stock			145,037												145,037
Common shareholders' equity			3,166,369												3,010,331
Total shareholders' equity			3,311,406												3,155,368
Total liabilities and shareholders' equity			$	33,506,021											$	32,483,356
Tax-equivalent net interest income						$	223,339											$	226,968
Less: Tax-equivalent adjustments						(2,487)												(2,561)
Net interest income						$	220,852											$	224,407
Net interest margin									2.82		%										2.99		%

(1)For purposes of our yield/rate computation, unrealized gain (loss) balances on available-for-sale securities and senior fixed-rate notes hedges are excluded.

(2)Interest-bearing deposits is a component of cash and cash equivalents on the Condensed Consolidated Statements of Cash Flows in Item 1. Financial Statements.

5

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			Six months ended June 30,
			2021												2020
(Dollars in thousands)			Average Balance			Interest			Yield/ Rate						Average Balance			Interest			Yield/ Rate
Assets
Interest-earning assets:
Loans and leases			$	21,447,192		$	377,969		3.51		%				$	20,966,857		$	414,235		3.93		%
Investment securities (1)			8,862,314			92,859			2.13						8,449,480			114,873			2.77
FHLB and FRB stock			77,461			619			1.61						117,663			2,116			3.62
Interest-bearing deposits (2)			976,873			523			0.11						83,887			196			0.46
Securities			9,916,648			94,001			1.92						8,651,030			117,185			2.76
Loans held for sale			11,610			144			2.48						23,281			359			3.08
Total interest-earning assets			31,375,450			$	472,114		3.01		%				29,641,168			$	531,779		3.59		%
Non-interest-earning assets			1,941,640												1,996,765
Total assets			$	33,317,090											$	31,637,933
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand deposits			$	6,606,464		$	—		—		%				$	5,170,280		$	—		—		%
Health savings accounts			7,448,943			3,257			0.09						6,803,784			5,900			0.17
Interest-bearing checking, money market and savings			12,181,295			3,323			0.06						10,053,559			18,865			0.38
Time deposits			2,242,250			4,953			0.45						2,968,514			21,883			1.48
Total deposits			28,478,952			11,533			0.08						24,996,137			46,648			0.38
Securities sold under agreements to repurchase and other borrowings			511,622			1,495			0.58						1,437,403			4,710			0.65
FHLB advances			137,143			1,047			1.52						1,082,865			10,617			1.94
Long-term debt (1)			566,462			8,441			3.22						560,964			9,562			3.66
Total borrowings			1,215,227			10,983			1.87						3,081,232			24,889			1.62
Total interest-bearing liabilities			29,694,179			$	22,516		0.15		%				28,077,369			$	71,537		0.51		%
Non-interest-bearing liabilities			339,949												386,118
Total liabilities			30,034,128												28,463,487
Preferred stock			145,037												145,037
Common shareholders' equity			3,137,925												3,029,409
Total shareholders' equity			3,282,962												3,174,446
Total liabilities and shareholders' equity			$	33,317,090											$	31,637,933
Tax-equivalent net interest income						$	449,598											$	460,242
Less: Tax-equivalent adjustments						(4,982)												(5,034)
Net interest income						$	444,616											$	455,208
Net interest margin									2.87		%										3.11		%

(1)For purposes of our yield/rate computation, unrealized gain (loss) balances on available-for-sale securities and senior fixed-rate notes hedges are excluded.

(2)Interest-bearing deposits is a component of cash and cash equivalents on the Condensed Consolidated Statements of Cash Flows in Item 1. Financial Statements.

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Net interest income (NII) and net interest margin are impacted by the level of interest rates, mix of assets earning and liabilities bearing those interest rates, and the volume of interest-earning assets and interest-bearing liabilities. These factors are influenced by changes in economic conditions that impact interest rate policy, competitive conditions that impact loan and deposit pricing strategies, as well as the extent of interest lost to non-performing assets.

NII is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. NII is the Company's largest source of revenue, representing 74.8% of total revenue for the six months ended June 30, 2021.

Net interest margin is the ratio of tax-equivalent net interest income to average earning assets for the period.

Webster manages the risk of changes in interest rates on net interest income and net interest margin through its Asset/Liability Committee (ALCO) and through related interest rate risk monitoring and management policies. ALCO meets at least monthly to make decisions on the investment securities and funding portfolios based on the economic outlook, its interest rate expectations, the portfolio risk position, and other factors.

Four main tools are used for managing interest rate risk:

•the size, duration and credit risk of the investment portfolio;

•the size and duration of the wholesale funding portfolio;

•interest rate contracts; and

•the pricing and structure of loans and deposits.

The federal funds rate target range was 0-0.25% at both June 30, 2021 and December 31, 2020, as compared to 1.50-1.75% at December 31, 2019. The benchmark 10-year U.S. Treasury rate increased to 1.45% at June 30, 2021 from 0.93% at December 31, 2020, as compared to 1.92% at December 31, 2019. Refer to the "Asset/Liability Management and Market Risk" section for further discussion of Webster's interest rate risk position.

Net Interest Income

Comparison to Prior Year Quarter

Net interest income decreased $3.6 million, or 1.58%, from $224.4 million for the three months ended June 30, 2020 to $220.9 million for the three months ended June 30, 2021. The quarter-over-quarter decrease in net interest income was also $3.6 million on a fully tax-equivalent basis.

Net interest margin decreased 17 basis points from 2.99% for the three months ended June 30, 2020 to 2.82% for the three months ended June 30, 2021. The decrease was primarily due to lower loan and securities yields, partially offset by deposit and borrowing costs, and Small Business Administration Paycheck Protection Program (PPP) loan fee accretion.

Comparison to Prior Year to Date

Net interest income decreased $10.6 million, or 2.33%, from $455.2 million for the six months ended June 30, 2020 to $444.6 million for the six months ended June 30, 2021. The year-over-year decrease in net interest income was also $10.6 million on a fully tax-equivalent basis.

Net interest margin decreased 24 basis points from 3.11% for the six months ended June 30, 2020 to 2.87% for the six months ended June 30, 2021. The decrease was primarily due to lower loan and securities yields, partially offset by deposit and borrowing costs, PPP loan fee accretion, and commercial portfolio loan growth.

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Changes in Net Interest Income

The following table presents the components of 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,
			2021 vs. 2020 Increase (decrease) due to												2021 vs. 2020 Increase (decrease) due to
(In thousands)			Rate (1)			Volume			Total						Rate (1)			Volume			Total
Interest on interest-earning assets:
Loans and leases			$	(8,217)		$	(2,419)		$	(10,636)					$	(46,890)		$	10,624		$	(36,266)
Loans held for sale			(10)			(122)			(132)						(35)			(180)			(215)
Securities (2)			(11,524)			1,501			(10,023)						(30,168)			6,984			(23,184)
Total interest income			$	(19,751)		$	(1,040)		$	(20,791)					$	(77,093)		$	17,428		$	(59,665)
Interest on interest-bearing liabilities:
Deposits			$	(12,407)		$	(1,304)		$	(13,711)					$	(34,051)		$	(1,064)		$	(35,115)
Borrowings			221			(3,672)			(3,451)						(1,589)			(12,317)			(13,906)
Total interest expense			$	(12,186)		$	(4,976)		$	(17,162)					$	(35,640)		$	(13,381)		$	(49,021)
Net change in net interest income			$	(7,565)		$	3,936		$	(3,629)					$	(41,453)		$	30,809		$	(10,644)

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

(2)Securities include: investment securities, Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, and interest-bearing deposits.

Average loans and leases for the six months ended June 30, 2021 increased $0.5 billion as compared to the average balance for the six months ended June 30, 2020, primarily due to the origination of second round PPP loans. The loan and lease portfolio comprised 68.4% of the average interest-earning assets at June 30, 2021 as compared to 70.7% of the average interest-earning assets at June 30, 2020. The loan and lease portfolio yield decreased 42 basis points from 3.93% for the six months ended June 30, 2020 to 3.51% for the six months ended June 30, 2021. The decrease in the yield is primarily due to decreased prepayments and premium amortization.

Average securities for the six months ended June 30, 2021 increased $1.3 billion as compared to the average balance for the six months ended June 30, 2020. The securities portfolio comprised 31.6% of the average interest-earning assets at June 30, 2021 as compared to 29.2% of the average interest-earning assets at June 30, 2020. The securities portfolio yield decreased 84 basis points from 2.76% for the six months ended June 30, 2020 to 1.92% for the six months ended June 30, 2021. The decrease in yield is primarily due to higher premium amortization and lower yield from newly purchased securities.

Average total deposits for the six months ended June 30, 2021 increased $3.5 billion as compared to the average balance for the six months ended June 30, 2020. The increase was driven by transactional deposit products resulting from fiscal stimulus. The average cost of deposits decreased 30 basis points from 0.38% for the six months ended June 30, 2020 to 0.08% for the six months ended June 30, 2021, primarily due to deposit product mix and the repricing of maturing certificates of deposit. Higher cost time deposits decreased as a percentage of total interest-bearing deposits from 15.0% for the six months ended June 30, 2020 to 10.3% for the six months ended June 30, 2021, primarily due to customer migration for more liquid deposit products.

Average total borrowings for the six months ended June 30, 2021 decreased $1.9 billion as compared to the average balance for the six months ended June 30, 2020. Specifically, average securities sold under agreements to repurchase and other borrowings decreased $925.8 million and average FHLB advances decreased $945.7 million. The average cost of borrowings increased 25 basis points from 1.62% for the six months ended June 30, 2020 to 1.87% for the six months ended June 30, 2021. The increase is primarily a result of a change in the mix of borrowings types.

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Provision for Credit Losses

Comparison to Prior Year Quarter

The provision for credit losses decreased $61.5 million, reflecting a benefit of $21.5 million for the three months ended June 30, 2021, as compared to an expense of $40.0 million for the three months ended June 30, 2020. The decrease is primarily attributed to improvements in the forecasted economic outlook and favorable credit trends, resulting in a release of reserves. Total net recoveries were $1.2 million for the three months ended June 30, 2021, as compared to net charge-offs of $16.4 million for the three months ended June 30, 2020.

Comparison to Prior Year to Date

The provision for credit losses decreased $163.3 million, reflecting a benefit of $47.3 million for the six months ended June 30, 2021, as compared to an expense of $116.0 million for the six months ended June 30, 2020. The decrease is primarily attributed to improvements in the forecasted economic outlook and favorable credit trends, resulting in a release of reserves. Total net charge-offs were $4.2 million and $24.2 million for the six months ended June 30, 2021 and 2020, respectively.

The allowance for credit losses on loans and leases coverage ratio decreased 23 basis points from 1.66% at December 31, 2020 to 1.43% at June 30, 2021. Refer to the sections captioned "Loans and Leases" through "Troubled Debt Restructurings" contained elsewhere in this report for further details.

Non-Interest Income

			Three months ended June 30,																		Six months ended June 30,
												Increase (decrease)																		Increase (decrease)
(Dollars in thousands)			2021			2020						Amount			Percent						2021			2020						Amount			Percent
Deposit service fees			$	41,439		$	35,839					$	5,600		15.6		%				$	81,908		$	78,409					$	3,499		4.5		%
Loan and lease related fees			7,862			6,968						894			12.8						16,175			13,464						2,711			20.1
Wealth and investment services			10,087			7,102						2,985			42.0						19,490			15,841						3,649			23.0
Mortgage banking activities			1,319			4,205						(2,886)			(68.6)						3,961			7,098						(3,137)			(44.2)
Increase in cash surrender value of life insurance policies			3,603			3,624						(21)			(0.6)						7,136			7,204						(68)			(0.9)
Gain on sale of investment securities, net			—			—						—			n/m						—			8						(8)			(100.0)
Other income			8,392			2,338						6,054			258.9						20,789			11,430						9,359			81.9
Total non-interest income			$	72,702		$	60,076					$	12,626		21.0						$	149,459		$	133,454					$	16,005		12.0

Comparison to Prior Year Quarter

Non-interest income increased $12.6 million, or 21.0%, from $60.1 million for the three months ended June 30, 2020 to $72.7 million for the three months ended June 30, 2021.

Deposit service fees totaled $41.4 million for the three months ended June 30, 2021, as compared to $35.8 million for the three months ended June 30, 2020. The increase is primarily due to higher interchange, overdraft, account service, and cash management fees.

Wealth and investment services totaled $10.1 million for the three months ended June 30, 2021, as compared to $7.1 million for the three months ended June 30, 2020. The increase was primarily due to increased customer driven investment services activity.

Mortgage banking activities totaled $1.3 million for the three months ended June 30, 2021, as compared to $4.2 million for the three months ended June 30, 2020. The decrease was primarily due to lower volume and spreads on loans originated for sale.

Other income totaled $8.4 million for the three months ended June 30, 2021, as compared to $2.3 million for the three months ended June 30, 2020. The increase was primarily due to fair value adjustments on customer derivatives and income from direct investments.

Comparison to Prior Year to Date

Non-interest income increased $16.0 million, or 12.0%, from $133.5 million for the six months ended June 30, 2020 to $149.5 million for the six months ended June 30, 2021.

Deposit service fees totaled $81.9 million for the six months ended June 30, 2021, as compared to $78.4 million for the six months ended June 30, 2020. The increase was primarily due to higher interchange and account service fees.

Loan and lease related fees totaled $16.2 million for the six months ended June 30, 2021, as compared to $13.5 million for the six months ended June 30, 2020. The increase was primarily due to mortgage servicing rights amortization and higher line usage fees, partially offset by the change in deferred loan origination fees.

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Wealth and investment services totaled $19.5 million for the six months ended June 30, 2021, as compared to $15.8 million for the six months ended June 30, 2020. The increase was primarily due to increased customer driven investment services activity.

Mortgage banking activities totaled $4.0 million for the six months ended June 30, 2021, as compared to $7.1 million for the six months ended June 30, 2020. The decrease was primarily due to lower volume and spreads on loans originated for sale.

Other income totaled $20.8 million for the six months ended June 30, 2021, as compared to $11.4 million for the six months ended June 30, 2020. The increase was primarily due to fair value adjustments, income from direct investments, and higher investment and third-party administrator (TPA) closure fees at the Company's HSA division.

Non-Interest Expense

			Three months ended June 30,																		Six months ended June 30,
												Increase (decrease)																		Increase (decrease)
(Dollars in thousands)			2021			2020						Amount			Percent						2021			2020						Amount			Percent
Compensation and benefits			$	97,754		$	99,731					$	(1,977)		(2.0)		%				$	205,354		$	201,618					$	3,736		1.9		%
Occupancy			14,010			14,245						(235)			(1.6)						29,660			28,730						930			3.2
Technology and equipment			27,124			27,468						(344)			(1.3)						55,640			55,305						335			0.6
Intangible assets amortization			1,132			962						170			17.7						2,271			1,924						347			18.0
Marketing			3,227			3,286						(59)			(1.8)						5,731			6,788						(1,057)			(15.6)
Professional and outside services			21,025			6,158						14,867			241.4						30,801			11,821						18,980			160.6
Deposit insurance			3,749			5,015						(1,266)			(25.2)						7,705			9,740						(2,035)			(20.9)
Other expense			19,007			19,719						(712)			(3.6)						37,848			39,494						(1,646)			(4.2)
Total non-interest expense			$	187,028		$	176,584					$	10,444		5.9						$	375,010		$	355,420					$	19,590		5.5

Comparison to Prior Year Quarter

Non-interest expense increased $10.4 million, or 5.9%, from $176.6 million for the three months ended June 30, 2020 to $187.0 million for the three months ended June 30, 2021.

Compensation and benefits totaled $97.8 million for the three months ended June 30, 2021, as compared to $99.7 million for the three months ended June 30, 2020. The decrease was primarily due to the effects of the Company's strategic initiatives.

Professional and outside services totaled $21.0 million for the three months ended June 30, 2021, as compared to $6.2 million for the three months ended June 30, 2020. The increase was primarily due to merger-related and strategic initiatives charges.

Deposit insurance totaled $3.7 million for the three months ended June 30, 2021, as compared to $5.0 million for the three months ended June 30, 2020. The decrease was primarily due to improvement in the Company's liquidity position.

Comparison to Prior Year to Date

Non-interest expense increased $19.6 million, or 5.5%, from $355.4 million for the six months ended June 30, 2020 to $375.0 million for the six months ended June 30, 2021.

Compensation and benefits totaled $205.4 million for the six months ended June 30, 2021, as compared to $201.6 million for the six months ended June 30, 2020. The increase was primarily due to variable based compensation, partially offset by the effects of the Company's strategic initiatives.

Marketing totaled $5.7 million for the six months ended June 30, 2021, as compared to $6.8 million for the six months ended June 30, 2020. The decrease was primarily due to reductions in ancillary spending, including advertising and promotional fees.

Professional and outside services totaled $30.8 million for the six months ended June 30, 2021, as compared to $11.8 million for the six months ended June 30, 2020. The increase was primarily due to merger-related and strategic initiatives charges.

Deposit insurance totaled $7.7 million for the six months ended June 30, 2021, as compared to $9.7 million for the six months ended June 30, 2020. The decrease was primarily due to improvement in the Company's liquidity position.

Other expense totaled $37.8 million for the six months ended June 30, 2021, as compared to $39.5 million for the six months ended June 30, 2020. The decrease was primarily due to lower pension costs, business travel, and ancillary spending, partially offset by increases in miscellaneous loan-related expenses.

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Income Taxes

Comparison to Prior Year Quarter

Webster recognized income tax expense of $34.0 million for the three months ended June 30, 2021 and $14.8 million for the three months ended June 30, 2020, reflecting effective tax rates of 26.6% and 21.8%, respectively.

The increase in income tax expense is due to a higher level of pre-tax income for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The increase in the effective tax rate for the three months ended June 30, 2021 reflects the effects of an estimated $16.1 million of the $17.1 million merger-related expenses recognized during the period as nondeductible for tax purposes, and a higher level of pre-tax income estimated for 2021 as compared to 2020.

Comparison to Prior Year to Date

Webster recognized income tax expense of $64.2 million for the six months ended June 30, 2021 and $25.9 million for the six months ended June 30, 2020, reflecting effective tax rates of 24.1% and 22.1%, respectively.

The increase in income tax expense is due to a higher level of pre-tax income for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The increase in the effective tax rate for the six months ended June 30, 2021 reflects the effects of a higher level of pre-tax income estimated for 2021 as compared to 2020, and the $16.1 million of the $17.1 million merger-related expenses recognized during the period as nondeductible for tax purposes. Those effects were partially offset by the recognition of $2.4 million of net tax benefits specific to the six months ended June 30, 2021, which includes $1.8 million of excess tax benefits from stock-based compensation, as compared to $0.2 million of net tax expense specific to the six months ended June 30, 2020, which included tax deficiencies of $0.6 million from stock-based compensation.

For additional information on Webster's income taxes, including its deferred tax assets (DTAs), refer to Note 10: Income Taxes in the Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

Segment Reporting

Webster's operations are organized into three reportable segments that represent its primary businesses: Commercial Banking, HSA Bank, and Retail 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. For additional information regarding the Company’s reportable segments and its segment reporting methodology, refer to Note 17: Segment Reporting in the Notes to the Condensed Consolidated Financial Statements contained elsewhere in this report.

Effective January 1, 2021, management realigned certain of the Company's business banking and investment services operations to better serve its customers and deliver operational efficiencies. The previously reported Community Banking segment was also renamed as Retail Banking. Under this realignment, $1.9 billion of loans, $2.2 billion of deposits, and $3.9 billion of assets under administration (off-balance sheet) were reassigned from Retail Banking to Commercial Banking. Additionally, $131.0 million of goodwill was reallocated, on a relative fair value basis, from Retail Banking to Commercial Banking. Prior period amounts have been recasted to reflect the realignment.

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

Commercial Banking serves businesses that have more than $2 million of revenue through its business banking, middle market, asset-based lending, equipment finance, commercial real estate lending, sponsor finance, and treasury services business units. Additionally, its Wealth group provides wealth management solutions to business owners, operators, and consumers within the Company's targeted markets and retail footprint.

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.

Retail Banking serves consumer and small business banking customers by offering consumer deposit and fee-based services, residential mortgages, home equity lines, secured and unsecured loans, and credit card products through its consumer lending and small business banking business units. Retail Banking operates a distribution network consisting of 130 banking centers and 253 ATMs, a customer care center, and a full range of web and mobile-based banking services, primarily throughout southern New England and into Westchester County, New York.

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Commercial Banking

Operating Results:

			Three months ended June 30,												Six months ended June 30,
(In thousands)			2021						2020						2021						2020
Net interest income			$	141,124					$	128,123					$	283,162					$	245,710
Non-interest income			25,713						21,849						50,890						44,265
Non-interest expense			61,445						61,261						126,281						126,482
Pre-tax, pre-provision net revenue			$	105,392					$	88,711					$	207,771					$	163,493

Comparison to Prior Year Quarter

PPNR increased $16.7 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Net interest income increased $13.0 million, primarily driven by PPP loan fee accretion, and growth in loan and deposit balances. Non-interest income increased $3.9 million, driven by higher trust and investment service fees. Non-interest expense increased $0.2 million.

Comparison to Prior Year to Date

PPNR increased $44.3 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. Net interest income increased $37.5 million, primarily driven by PPP loan fee accretion, and growth in loan and deposit balances. Non-interest income increased $6.6 million, driven by higher trust and investment service fees and loan related fees. Non-interest expense decreased $0.2 million.

Selected Balance Sheet and Off-Balance Sheet Information:

(In thousands)			At June 30, 2021						At December 31, 2020
Loans and leases			$	14,654,087					$	14,573,343
Deposits			8,844,273						8,190,997
Assets under administration/management (off-balance sheet)			7,060,851						6,585,795

Loans and leases increased $80.7 million at June 30, 2021 as compared to December 31, 2020. Loan originations in the six months ended June 30, 2021 and 2020 were $2.6 billion and $2.8 billion, respectively. The increase in loans was primarily related to commercial and commercial real estate originations, partially offset by increased prepayment activity and a decrease in PPP loans. Included in the June 30, 2021 balance was $347.9 million of second round PPP loan originations.

Deposits increased $653.3 million at June 30, 2021 as compared to December 31, 2020. The increase was primarily driven by excess customer liquidity as a result of government stimulus and reduced spending.

Commercial Banking held approximately $5.0 billion and $4.7 billion in assets under administration at June 30, 2021 and December 31, 2020, respectively, and $2.0 billion and $1.9 billion in assets under management at June 30, 2021 and December 31, 2020, respectively. The increase in assets under administration was due to both new business and market appreciation.

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HSA Bank

Operating Results:

			Three months ended June 30,												Six months ended June 30,
(In thousands)			2021						2020						2021						2020
Net interest income			$	42,193					$	39,334					$	84,302					$	82,007
Non-interest income			26,554						23,103						53,559						49,486
Non-interest expense			32,792						34,020						69,042						71,098
Pre-tax net revenue			$	35,955					$	28,417					$	68,819					$	60,395

Comparison to Prior Year Quarter

Pre-tax net revenue increased $7.5 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Net interest income increased $2.9 million, primarily due to growth in deposits. Non-interest income increased $3.5 million, primarily due to increases in interchange, investment, and third-party administrator closure fees. Non-interest expense decreased $1.2 million, primarily due to reduced compensation and benefit expenses and outside service fees.

Comparison to Prior Year to Date

Pre-tax net revenue increased $8.4 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. Net interest income increased $2.3 million, primarily due to growth in deposits. Non-interest income increased $4.1 million, primarily due to increases in interchange, investment, and third-party administrator closure fees. Non-interest expense decreased $2.1 million, primarily due to reduced outside service fees and travel expenses.

Selected Balance Sheet and Off-Balance Sheet Information:

(In thousands)			At June 30, 2021						At December 31, 2020
Deposits			$	7,323,421					$	7,120,017
Assets under administration, through linked brokerage accounts (off-balance sheet)			3,383,670						2,852,877
Total footings			$	10,707,091					$	9,972,894

Deposits increased $203.4 million at June 30, 2021 as compared to December 31, 2020, primarily due to new accounts, as well as organic growth in existing account balances.

HSA Bank deposits accounted for 25.4% and 26.0% of total deposits at June 30, 2021 and December 31, 2020, respectively.

Assets under administration, through linked brokerage accounts, increased $530.8 million at June 30, 2021 as compared to December 31, 2020, primarily due to an increase in the number of account holders, as well as market appreciation during the six months ended June 30, 2021.

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Retail Banking

Operating Results:

			Three months ended June 30,												Six months ended June 30,
(In thousands)			2021						2020						2021						2020
Net interest income			$	92,540					$	81,609					$	181,353					$	162,808
Non-interest income			16,763						16,281						32,834						34,724
Non-interest expense			72,346						77,119						148,470						157,409
Pre-tax, pre-provision net revenue			$	36,957					$	20,771					$	65,717					$	40,123

Comparison to Prior Year Quarter

PPNR increased $16.2 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. Net interest income increased $10.9 million, driven by PPP loan fee accretion and deposit growth, partially offset by lower consumer loan balances. Non-interest income increased $0.5 million, resulting from higher deposit-related service charges and loan servicing fee income, partially offset by lower fee income from mortgage banking activities. Non-interest expense decreased $4.8 million, driven by lower compensation and benefits, pension costs, occupancy, and marketing expenses.

Comparison to Prior Year to Date

PPNR increased $25.6 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. Net interest income increased $18.5 million, driven by PPP loan fee accretion and deposit growth, partially offset by lower consumer loan balances. Non-interest income decreased $1.9 million, resulting from lower deposit-related service charges and income from mortgage banking activities, partially offset by higher loan servicing fee income. Non-interest expense decreased $8.9 million, driven by lower compensation and benefits, pension costs, occupancy, and marketing expenses.

Selected Balance Sheet and Off-Balance Sheet Information:

(In thousands)			At June 30, 2021						At December 31, 2020
Loans			$	6,820,876					$	7,067,818
Deposits			12,680,453						12,023,600

Loans decreased $246.9 million at June 30, 2021 as compared to December 31, 2020. The decrease is due to lower small business, home equity, and other consumer loan balances, partially offset by higher residential mortgage balances.

Loan originations during the six months ended June 30, 2021 and 2020 were $1.7 billion and $1.4 billion, respectively. The $297.9 million increase resulted from $248.4 million of second round PPP loan originations coupled with increased residential mortgage and home equity originations in the lower interest rate environment.

Deposits increased $656.9 million at June 30, 2021 as compared to December 31, 2020, primarily due to two government stimulus payments to consumers and an additional round of PPP loan fundings, coupled with seasonally higher balances in business and consumer transaction accounts. This also drove balance increases in savings and money market products, partially offset by a decline in certificate of deposit balances.

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Financial Condition

Total assets were $33.8 billion at June 30, 2021 as compared to $32.6 billion at December 31, 2020. The $1.2 billion increase was primarily driven by a $1.3 billion increase in interest-bearing deposits, partially offset by a $166.2 million decrease in loans and leases.

Total liabilities were $30.4 billion at June 30, 2021 as compared to $29.4 billion at December 31, 2020. The $1.0 billion increase was primarily driven by a $1.5 billion increase in deposits, specifically increases of $0.6 billion, $0.7 billion, $0.2 billion in demand deposits, interest-bearing deposits, and HSA deposits, respectively, and a $45.6 million increase in accrued expenses and other liabilities, partially offset by a $0.5 billion decrease in securities sold under agreements to repurchase and other borrowings.

Total shareholders' equity was $3.3 billion at June 30, 2021 as compared to $3.2 billion at December 31, 2020. The $95.1 million increase primarily reflects $202.1 million of net income recognized, offset by $36.4 million of other comprehensive loss (OCL), and $72.5 million and $3.9 million in dividends paid to common and preferred shareholders, respectively.

Book value per common share was $35.15 at June 30, 2021, as compared to $34.25 at December 31, 2020. On July 19, 2021, the Board of Directors declared a quarterly cash dividend to shareholders of $0.40 per common share. The Company will continue to monitor its ability to pay dividends at this level. Due to the Company's announcement of its pending merger agreement with Sterling, Webster is restricted from paying quarterly cash dividends in excess of the current level until the transaction is closed.

As of June 30, 2021, both the Company and the Bank were considered well-capitalized, meeting all capital requirements under the Basel III Capital Rules. In accordance with regulatory capital rules, the Company elected the option to delay the impact of the adoption of current expected credit losses (CECL) on its regulatory capital over a two-year deferral and subsequent three-year transition period ending December 31, 2024. Therefore, capital ratios and amounts as of June 30, 2021 exclude the impact of the increased allowance for credit losses on loans and leases, held-to-maturity debt securities, and unfunded loan commitments attributed to the adoption of CECL. This resulted in a 26, 7, 26, and 17 basis point benefit to the Company's CET1 risk based capital, total risk based capital, tier 1 risk based capital, and tier 1 leverage capital, respectively, at June 30, 2021. The Company's capital ratios remain in excess of well capitalized even without the benefit of the CECL impact delay.

Refer to the selected financial highlights under the "Results of Operations" section and Note 12: Regulatory Matters in the accompanying Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for information on regulatory capital levels and ratios.

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Investment Securities

Webster Bank's investment securities are managed within regulatory guidelines and corporate policy, which include limitations on aspects such as concentrations in and types of investments, as well as minimum risk ratings per type of security. The Office of the Comptroller of the Currency (OCC) may establish additional individual limits on a certain type of investment if the concentration in such investment presents a safety and soundness concern. In addition to Webster Bank, the Holding Company may also directly hold investment securities. At June 30, 2021, the Company had no holdings in obligations of individual states, counties, or municipalities which exceeded 10% of consolidated shareholders’ equity.

Through its Corporate Treasury function, Webster maintains investment securities that are primarily used to provide a source of liquidity for operating needs, to generate interest income, and as a means to manage interest-rate risk. Investment securities are classified into two major categories: available-for-sale, which currently consists of agency collateralized mortgage obligations (Agency CMO); agency mortgage-backed securities (Agency MBS); agency commercial mortgage-backed securities (Agency CMBS); non-agency commercial mortgage-backed securities (CMBS); collateralized loan obligations (CLO); and corporate debt, and held-to-maturity, which currently consists of Agency CMO; Agency MBS; Agency CMBS; municipal bonds and notes; and CMBS. Investment securities had a carrying value and an average risk weighting for regulatory purposes of $8.9 billion and 13%, respectively, at both June 30, 2021 and December 31, 2020.

Available-for-sale investment securities decreased $63.9 million, primarily due to paydowns exceeding purchases and a decline in fair value as a result of lower market rates. The tax-equivalent yield in the portfolio was 1.83% for the six months ended June 30, 2021 as compared to 2.62% for the six months ended June 30, 2020. Available-for-sale investment securities are evaluated for credit losses on a quarterly basis. Unrealized losses on these securities are attributable to factors other than credit loss, and therefore no ACL has been recorded. Further, the Company does not have the intent to sell these investment securities, and it is more likely than not that it will not be required to sell these securities before the recovery of their cost basis. Gross unrealized losses on available-for-sale investment securities were $14.2 million at June 30, 2021.

Held-to-maturity investment securities increased $55.4 million, primarily due to purchases exceeding paydown activity. The tax-equivalent yield in the portfolio was 2.30% for the six months ended June 30, 2021 as compared to 2.85% for the six months ended June 30, 2020. Held-to-maturity investment securities are evaluated for credit losses on a quarterly basis under CECL. The ACL on investment securities held-to-maturity was $0.4 million at June 30, 2021. Gross unrealized losses on held-to-maturity investment securities were $20.3 million at June 30, 2021.

The following table summarizes the amortized cost and fair value of investment securities:

			At June 30, 2021															At December 31, 2020
(In thousands)			Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value						Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
Available-for-sale:
Agency CMO			$	115,985		$	4,366		$	(23)		$	120,328					$	148,711		$	6,000		$	(98)		$	154,613
Agency MBS			1,339,769			47,666			(4,905)			1,382,530						1,389,100			68,598			(289)			1,457,409
Agency CMBS			939,055			10,509			(8,167)			941,397						1,092,430			26,317			(1,514)			1,117,233
CMBS			754,192			1,008			(230)			754,970						512,759			1,082			(5,823)			508,018
CLO			50,000			8			(44)			49,964						76,693			—			(310)			76,383
Corporate debt			14,569			11			(876)			13,704						14,557			—			(1,437)			13,120
Available-for-sale			$	3,213,570		$	63,568		$	(14,245)		$	3,262,893					$	3,234,250		$	101,997		$	(9,471)		$	3,326,776
Held-to-maturity:
Agency CMO			$	61,080		$	1,425		$	(63)		$	62,442					$	91,622		$	1,785		$	(241)		$	93,166
Agency MBS			2,562,863			96,187			(3,684)			2,655,366						2,419,751			137,863			(84)			2,557,530
Agency CMBS			2,105,924			30,491			(16,545)			2,119,870						2,101,227			60,484			(2,213)			2,159,498
Municipal bonds and notes			715,195			56,218			—			771,413						739,507			60,371			(3)			799,875
CMBS			178,563			6,501			—			185,064						216,081			9,214			—			225,295
Held-to-maturity			$	5,623,625		$	190,822		$	(20,292)		$	5,794,155					$	5,568,188		$	269,717		$	(2,541)		$	5,835,364

Webster Bank has the ability to use its investment portfolio, as well as interest-rate derivative financial instruments, within internal policy guidelines to hedge and manage interest-rate risk as part of its asset/liability strategy. Refer to Note 14: Derivative Financial Instruments in the accompanying Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for additional information concerning derivative financial instruments.

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Loans and Leases

The following table provides the composition of loans and leases:

			At June 30, 2021									At December 31, 2020
(Dollars in thousands)			Amount			%						Amount			%
Commercial non-mortgage			$	6,843,415		31.9						$	7,085,076		32.8
Asset-based			943,961			4.4						890,598			4.1
Commercial real estate			6,410,672			29.9						6,322,637			29.2
Equipment financing			630,343			2.9						602,224			2.8
Residential			4,856,302			22.6						4,782,016			22.1
Home equity			1,677,136			7.8						1,802,865			8.3
Other consumer			113,172			0.5						155,799			0.7
Total loans and leases			$	21,475,001		100.0						$	21,641,215		100.0

Total commercial non-mortgage and asset-based loans were $7.8 billion at June 30, 2021, reflecting a decrease of $188.3 million from December 31, 2020. The decrease is primarily the result of higher principal paydowns.

Commercial real estate loans were $6.4 billion at June 30, 2021, reflecting an increase of $88.0 million from December 31, 2020. The increase is a result of originations of $642.8 million, partially offset by loan payments.

Equipment financing was $630.3 million at June 30, 2021, reflecting an increase of $28.1 million from December 31, 2020. The increase is a result of originations of $133.4 million, partially offset by loan payments.

Residential loans were $4.9 billion at June 30, 2021, reflecting an increase of $74.3 million from December 31, 2020. The increase is a result of originations of $1.0 billion, partially offset by loan payments.

Total home equity and other consumer loans were $1.8 billion at June 30, 2021, reflecting a decrease of $168.4 million from December 31, 2020. The decrease is primarily due to continued net principal paydowns within the home equity lines.

Credit Policies and Procedures

Webster Bank has credit policies and procedures in place designed to support lending activity within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. To assist management with its review, reports related to loan production, loan quality, concentrations of credit, loan delinquencies, non-performing loans, and potential problem loans are generated using the Company's loan reporting systems. Webster has implemented incremental monitoring procedures in connection with COVID-19.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate and service its debt. Assessment of management is a critical element of the underwriting process and overall credit decision. Once it is determined that the borrower’s management possesses sound ethics and a solid business acumen, current and projected cash flows are examined to determine the ability of the borrower to repay its agreed upon obligations. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. However, the cash flows of borrowers may not be as expected, and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed and may incorporate personal guarantees of the principal amounts.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans. These real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Repayment of these loans is largely dependent on the successful operation of the property securing the loan, the market in which the property is located, and the tenants of the property securing the loan. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location, which reduces the Company's exposure to adverse economic events that may affect a particular market. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. Management periodically utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting its commercial real estate loan portfolio.

Consumer loans are subject to policies and procedures developed to manage the risk characteristics of the portfolio. Policies and procedures, coupled with relatively small individual loan amounts and predominately collateralized structures spread across many different borrowers, minimize risk. Trend and outlook reports are reviewed by management on a regular basis with policies and procedures modified, or developed, as needed. Underwriting factors for mortgage and home equity loans include the borrower’s Fair Isaac Corporation (FICO) score, the loan amount relative to property value, and the borrower’s debt to income level, and are also influenced by regulatory requirements. Additionally, Webster Bank originates both qualified mortgage and non-qualified mortgage loans as defined by applicable Consumer Financial Protection Bureau (CFPB) rules.

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Loan Modifications

Webster works with customers to modify loan agreements when borrowers are experiencing financial difficulties. Webster will modify a loan in order to minimize the risk of loss and achieve the best possible outcome for both the borrower and the Company. Loan modifications can take various forms and include payment deferrals, rate reductions, covenant waivers, term extensions, or other action. Depending on the nature of modification, it may, or may not, be accounted for as a troubled debt restructuring (TDR).

COVID-19 Payment Modification Activities

The Company has accommodated over 2,500 customers impacted by COVID-19 through payment-related deferrals. As of June 30, 2021, loan balances associated with these modifications, in their deferral period, totaled approximately $133.1 million. This balance includes all loans associated with a customer relationship where at least one loan has been modified or is in process of modification. A significant portion of the loan balances associated with these modifications would not be considered a TDR based on the nature of the modification. Certain other modifications that would otherwise be considered a TDR are subject to TDR accounting relief through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Interagency Statement. Included in the $133.1 million are the $120.3 million of loan balances associated with the CARES Act and Interagency Statement, as discussed below. The Company continues to actively monitor customer relationships associated with these modified loans. The impact of these modifications is reflected in our allowance for credit losses on loans and leases.

The CARES Act and Interagency Statement

In response to the COVID-19 pandemic, financial institutions were provided relief from certain TDR accounting and disclosure requirements for qualifying loan modifications. Specifically, Section 4013 of the CARES Act, extended by the Consolidated Appropriations Act, 2021, provided temporary relief from certain GAAP requirements for modifications related to COVID-19. In addition, a group of banking regulatory agencies issued a revised Interagency Statement that offers practical expedients for evaluating whether COVID-19 loan modifications are TDRs.

As of June 30, 2021, loan balances associated with loan modifications designated in connection with these relief provisions in their deferral period totaled approximately $120.3 million. These modifications represent payment deferrals, generally three to six months in length. The $16.7 million decrease from $137.0 million at March 31, 2021 is primarily the result of borrowers exiting their payment deferral period. The Company will continue to evaluate the effectiveness of the loan modification program as the deferral periods end. For additional information on the accounting for loan modifications under Section 4013 of the CARES Act and the Interagency Statement, refer to Note 1 to the Consolidated Financial Statements included in Webster's 2020 Form 10-K.

Troubled Debt Restructurings

A modified loan is considered a TDR when two conditions are met: (i) the borrower is experiencing financial difficulties, and (ii) the modification constitutes a concession. Modified terms are dependent upon the financial position and needs of the individual borrower. The Company considers all aspects of the restructuring in determining whether a concession has been granted, including the debtor's ability to access market rate funds. In general, a concession exists when the modified terms of the loan are more attractive to the borrower than standard market terms. Common modifications include material changes in covenants, pricing, and forbearance. Loans for which the borrower has been discharged under Chapter 7 bankruptcy are considered collateral dependent TDRs and thus, at the date of discharge, are charged down to the fair value of collateral less costs to sell.

The Company’s policy is to place consumer loan TDRs on non-accrual status for a minimum period of six months, except for those that were performing prior to TDR status. Commercial TDRs are evaluated on a case-by-case basis for determination of accrual status. Loans qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement for a minimum of six months. Generally, a TDR is classified and reported as a TDR for the remaining life of the loan. TDR classification may be removed if the loan was restructured under market conditions and the borrower demonstrates compliance with the modified terms for a minimum period of six months. In the limited circumstance that a TDR classification is removed, the loan is returned to the appropriate pool and credit losses are determined through the collective assessment process.

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The following tables provide information for loans classified as TDRs:

			Six months ended June 30,
(In thousands)			2021						2020
Beginning balance			$	235,427					$	237,438
Additions			3,820						52,385
Paydowns, net of draws			(52,331)						(23,997)
Charge-offs			(2,248)						(3,084)
Transfers to OREO			(325)						(1,296)
Ending balance			$	184,343					$	261,446

(In thousands)			At June 30, 2021						At December 31, 2020
Accrual status			$	119,707					$	140,089
Non-accrual status			64,636						95,338
Total TDRs			$	184,343					$	235,427
Specific reserves for TDRs included in the balance of ACL on loans and leases			$	11,726					$	12,728
Additional funds committed to borrowers in TDR status			13,512						12,895

TDR balances decreased $51.1 million at June 30, 2021 as compared to December 31, 2020, primarily due to increased paydown activity. Specific reserves for TDRs decreased from year end reflective of management’s current assessment of reserve requirements. Qualifying loan modifications in connection with Section 4013 of the CARES Act or Interagency Statement are excluded from TDR identification.

Past Due Loans and Leases

The following table provides information on loans and leases that are accruing income and are past due 30 days or more:

			At June 30, 2021									At December 31, 2020
(Dollars in thousands)			Amount (1)			% (2)						Amount (1)			% (2)
Commercial non-mortgage			$	1,138		0.02						$	1,503		0.02
Asset-based lending			—			—						1,175			0.13
Commercial real estate			1,679			0.03						3,003			0.05
Equipment financing			2,016			0.32						7,415			1.24
Residential			4,690			0.10						10,623			0.22
Home equity			8,016			0.48						7,246			0.41
Other consumer			813			0.72						1,474			0.95
Loans and leases past due 30-89 days			18,352			0.09						32,439			0.15
Commercial non-mortgage loans and leases past due 90 days and accruing			25			—						445			0.01
Total			18,377			0.09						32,884			0.15
Net deferred (fees) costs and net (premiums) discounts			40									98
Total loans and leases past due 30 days or more and accruing income			$	18,417								$	32,982

(1)Past due loans and leases exclude non-accrual loans and leases.

(2)Represents the principal balance of loans and leases that are accruing income and are past due 30 days as a percentage of the outstanding principal balance within the comparable loan and lease category.

Loans and leases that are accruing income and are past due 30 days or more decreased $14.6 million at June 30, 2021 as compared to December 31, 2020. The ratio of loans and leases that are accruing income and are past due 30 days or more as a percentage of total loans and leases decreased to 0.09% at June 30, 2021 as compared to 0.15% at December 31, 2020.

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Non-performing Assets

The following table provides information on non-performing assets:

			At June 30, 2021									At December 31, 2020
(Dollars in thousands)			Amount			% (1)						Amount			% (1)
Commercial non-mortgage			$	49,669		0.72						$	64,200		0.90
Asset-based			2,403			0.25						2,622			0.29
Commercial real estate			12,687			0.20						21,222			0.34
Equipment financing			8,162			1.31						7,299			1.22
Residential			21,467			0.45						41,033			0.86
Home equity			25,942			1.56						30,980			1.73
Other consumer			411			0.36						649			0.42
Total non-accrual loans and leases			120,741			0.56						168,005			0.78
Net deferred (fees) costs and net (premiums) discounts			(137)									(45)
Amortized cost of non-accrual loans and leases (2)			$	120,604								$	167,960
Total non-accrual loans and leases			$	120,741								$	168,005
Foreclosed and repossessed assets:
Commercial non-mortgage			—									175
Residential and consumer			2,756									2,134
Total foreclosed and repossessed assets			2,756									2,309
Total non-performing assets			$	123,497								$	170,314

(1)Represents the principal balance of non-accrual loans and leases as a percentage of the outstanding principal balance within the comparable loan and lease category.

(2)Includes non-accrual TDRs of $64.6 million and $95.3 million at June 30, 2021 and December 31, 2020, respectively.

Non-performing assets decreased $46.8 million at June 30, 2021 as compared to December 31, 2020. Non-performing assets as a percentage of total assets decreased to 0.37% at June 30, 2021 as compared to 0.52% at December 31, 2020.

The following table provides details of non-performing loan and lease activity:

			Six months ended June 30,
(In thousands)			2021						2020
Beginning balance			$	168,005					$	150,906
Additions			24,345						62,952
Paydowns, net of draws			(40,284)						(9,874)
Charge-offs			(8,654)						(25,880)
Other			(22,671)						(5,050)
Ending balance			$	120,741					$	173,054

(1)Other generally includes loans transferred to OREO, or loans held for sale. The 2021 amount also includes $19.7 million of consumer loans that were sold during the period.

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Asset Quality

The Company manages its asset quality leveraging established risk tolerance levels through its underwriting standards, servicing, and portfolio management of loans and leases. Loans and leases, particularly where a heightened risk of loss has been identified, are regularly monitored to mitigate further deterioration that could potentially impact key measures of asset quality in future periods. Management considers past due loans and leases, non-performing assets, and credit loss levels to be key measures of asset quality.

The following table provides key asset quality ratios:

			At June 30, 2021						At December 31, 2020
Non-performing loans and leases as a percentage of loans and leases			0.56		%				0.78		%
Non-performing assets as a percentage of loans and leases plus other real estate owned (OREO)			0.57						0.79
Non-performing assets as a percentage of total assets			0.37						0.52
ACL on loans and leases as a percentage of non-performing loans and leases			255.05						213.94
ACL on loans and leases as a percentage of loans and leases			1.43						1.66
Net charge-offs as a percentage of average loans and leases (1)			0.04						0.21
Ratio of ACL on loans and leases to net charge-offs (1)			37.08x						7.97x

(1)Calculated for the June 30, 2021 period based on annualized year-to-date net charge-offs.

These ratio calculations include the impact of PPP loans totaling $846.0 million and $1.3 billion for which there was no allowance for credit losses recorded at June 30, 2021 and December 31, 2020, respectively.

Potential Problem Loans and Leases

Potential problem loans and leases are defined by management as certain loans and leases that, for:

•the commercial portfolio, are performing loans and leases classified as Substandard and have a well-defined weakness that could jeopardize the full repayment of the debt; and

•the consumer portfolio, are performing loans that are accruing income and are 60-89 days past due.

Potential problem loans and leases exclude loans and leases that are accruing income and are past due 90 days or more, non-accrual loans and leases, and TDRs. Certain loans with modifications related to COVID-19 are not reflected as potential problem loans and have not reported as TDRs due to relief provisions of the CARES Act and Interagency Statement, as discussed elsewhere in this section. As uncertainties related to the pandemic still exist, there is a risk that some of these modified loans may become potential problem loans at a later date.

Management monitors potential problem loans and leases due to a higher degree of risk associated with those loans and leases. The current expectation of lifetime losses is included in the ACL on loans and leases, however management cannot predict whether these potential problem loans and leases ultimately will become non-performing or result in a loss. The Company had potential problem loans and leases of $259.1 million at June 30, 2021 as compared to $335.1 million at December 31, 2020.

Allowance for Credit Losses on Loans and Leases

Methodology

The Company's policy for ACL on loans and leases is considered a critical accounting policy. The ACL on loans and leases is a contra-asset account that offsets the amortized cost basis of loans and leases for the credit losses expected to occur over the life of the asset. Executive management reviews and advises on the adequacy of the reserve, which is maintained at a level management deems sufficient to cover expected losses within each of the loan and lease portfolios.

The ACL on loans and leases is determined using the CECL model, which requires recognition of expected lifetime credit losses at the purchase or origination of an asset. Expected losses are determined through a pooled, collective assessment of loans and leases with similar risk characteristics. If the risk characteristics of a loan or lease change and no longer match that of the collective assessment pool, it is removed and individually assessed for credit impairment. Management applies significant judgments and assumptions that influence the loss estimate and ACL on loan and lease balances.

Collectively Assessed Loans and Leases. Collectively assessed loans and leases are segmented based on the commercial and consumer portfolios and expected losses are determined using a Probability of Default/Loss Given Default/Exposure at Default (PD/LGD/EAD) framework. Expected credit losses are calculated as the product of the probability of a loan defaulting, expected loss given the occurrence of a default, and the current exposure of a loan at default. Summing the product across loans over their lives yields the lifetime expected credit losses for a given portfolio. The Company’s PD and LGD calculations are predictive models that measure the current risk profile of the loan pools using forecasts of future macroeconomic conditions, historical loss information, and credit risk ratings. The Company’s models incorporate a single economic forecast scenario and macroeconomic assumptions over a reasonable and supportable forecast period. Macroeconomic variables are selected based on

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the correlation of the variables to credit losses for each class of financing receivable. Data from the baseline forecast scenario is used as the input to the model loss calculation. After the reasonable and supportable forecast period, the Company reverts to historical loss rates for the remaining life of the loans and leases on a straight-line basis over a one-year reversion period. The calculation of exposure at default follows an iterative process to determine the expected remaining principal balance of a loan based on historical paydown rates for loans of similar segment within the same portfolio. The calculation of portfolio exposure in future quarters incorporates expected losses and principal paydown (PPD). PPD is the combination of contractual repayment and prepayment. A portion of the collective ACL is comprised of qualitative adjustments for risk characteristics, which are not reflected or captured in the quantitative models but are likely to impact the measurement of estimated credit losses.

Individually Assessed Loans and Leases. When loans and leases no longer match the risk characteristics of the collective assessment pool, they are removed from the collectively assessed population and individually assessed for credit losses. Generally, all non-accrual loans, TDRs, potential TDRs, loans with a charge-off, and collateral dependent loans when the borrower is experiencing financial difficulty, are individually assessed. Individual assessment calculations are either based on the fair value of the collateral less estimated costs to sell, the present value of the expected cash flows from operation of the collateral, discounted cash flows, or other individual assessment approach, as appropriate.

A fair value shortfall relative to the amortized cost balance is reflected as an impairment reserve within the ACL on loans and leases. Subsequent to an appraisal or other fair value estimate, should reliable information come to management's attention that the value has declined further, additional impairment may be recorded to reflect the particular situation, thereby increasing the ACL on loans and leases. Any individually assessed loan for which no specific valuation allowance was necessary is the result of either sufficient cash flow or sufficient collateral coverage relative to the amortized cost. If the credit quality subsequently improves, the allowance is reversed up to a maximum of the previously recorded credit loss.

The ACL on loans and leases represents the total of estimated losses calculated through collective and individual assessments. To assist management with its review, reports related to loan production, loan quality, concentrations of credit, loan delinquencies, non-performing loans, and potential problem loans are generated using the Company's loan reporting systems. While actual future conditions and losses realized may vary significantly from present judgments and assumptions, management believes the ACL on loans and leases is adequate as of June 30, 2021. For additional information on the Company's ACL methodology, refer to Note 1: Summary of Significant Accounting Policies to the Consolidated Financial Statements included in Webster's 2020 Form 10-K.

Allowance for Credit Losses on Loans and Leases Balances and Ratios

The ACL on loans and leases decreased $51.5 million, or 14.3%, from $359.4 million at December 31, 2020 to $307.9 million at June 30, 2021. The decrease in the allowance is primarily attributed to improvements in the forecasted economic outlook and favorable credit trends, resulting in a release of reserves. The ACL on loans and leases as a percentage of total loans and leases, also known as the reserve coverage ratio, decreased from 1.66% at December 31, 2020 to 1.43% at June 30, 2021. The ACL on loans and leases as a percentage of non-performing loans and leases increased from 213.94% at December 31, 2020 to 255.05% at June 30, 2021, primarily due to the sale of $19.7 million of non-performing consumer and residential loans during the second quarter of 2021 and increased paydown activity.

The following table provides information on the portfolio allocation of the ACL on loans and leases:

			At June 30, 2021									At December 31, 2020
(Dollars in thousands)			Amount			% (1)						Amount			% (1)
Commercial portfolio			$	263,071		1.77						$	312,244		2.10
Consumer portfolio			44,874			0.68						47,187			0.70
Total ACL on loans and leases			$	307,945		1.43						$	359,431		1.66

(1)Percentage represents the allocated ACL on loans and leases to total loans and leases within the comparable category. The allocation of a portion of the allowance to one category of loans and leases does not preclude its availability to absorb losses in other categories.

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The following table provides details of the activity in the ACL on loans and leases:

			At or for the three months ended June 30,												At or for the six months ended June 30,
(In thousands)			2021						2020						2021						2020
Beginning balance			$	328,351					$	334,931					$	359,431					$	209,096
Adoption of ASU No. 2016-13 (CECL)			—						—						—						57,568
(Benefit) provision			(21,574)						40,003						(47,333)						116,088
Charge-offs:
Commercial non-mortgage			(431)						(14,727)						(1,510)						(20,166)
Commercial real estate			(163)						—						(5,320)						(30)
Equipment financing			—						(567)						(85)						(672)
Residential			(1,105)						(194)						(1,485)						(1,705)
Home equity			(244)						(490)						(938)						(1,351)
Other consumer			(1,459)						(2,096)						(3,359)						(4,311)
Total charge-offs			(3,402)						(18,074)						(12,697)						(28,235)
Recoveries:
Commercial non-mortgage			824						249						1,033						758
Asset-based			2						10						1,426						13
Commercial real estate			10						2						13						5
Equipment financing			—						22						—						71
Residential			782						83						1,940						318
Home equity			2,448						817						3,172						1,855
Other consumer			504						479						960						985
Total recoveries			4,570						1,662						8,544						4,005
Net charge-offs			1,168						(16,412)						(4,153)						(24,230)
Ending balance			$	307,945					$	358,522					$	307,945					$	358,522

The following table provides a summary of net charge-offs to average loans and leases by portfolio:

			Three months ended June 30,																		Six months ended June 30,
			2021									2020									2021									2020
(Dollars in thousands)			Amount			% (1)						Amount			% (1)						Amount			% (1)						Amount			% (1)
Commercial portfolio			$	(242)		(0.01)						$	15,011		0.41						$	4,443		0.06						$	20,021		0.29
Consumer portfolio			(926)			(0.06)						1,401			0.08						(290)			(0.01)						4,209			0.12
Net (recoveries) charge-offs			$	(1,168)		(0.02)						$	16,412		0.30						$	4,153		0.04						$	24,230		0.23

(1)Percentage of net charge-offs to average loans and leases was calculated based on annualized period-to-date activity.

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Sources of Funds and Liquidity

Sources of Funds. The primary source of Webster Bank’s cash flows for use in lending and meeting its general operational needs is deposits. Operating activities, such as loan and mortgage-backed securities repayments, and other investment securities sale proceeds and maturities, also provide cash flows. While scheduled loan and investment securities repayments are a relatively stable source of funds, loan and investment securities prepayments and deposit inflows are influenced by prevailing interest rates, and local economic conditions and are inherently uncertain. Additional sources of funds are provided by FHLB advances or other borrowings.

Federal Home Loan Bank and Federal Reserve Bank Stock. Webster Bank is a member of the FHLB System, which consists of eleven district Federal Home Loan Banks, each subject to the supervision and regulation of the Federal Housing Finance Agency. An activity-based capital stock investment in the FHLB of Boston is required in order for Webster Bank to access advances and other extensions of credit for sources of funds and liquidity purposes. The FHLB capital stock investment is restricted in that there is no market for it, and it can only be redeemed by the FHLB. Webster Bank held FHLB Boston capital stock of $16.6 million at June 30, 2021 compared to $17.5 million at December 31, 2020 for its FHLB membership and for outstanding advances and other extensions of credit. The most recent FHLB quarterly cash dividend was paid on May 4, 2021 in an amount equal to an annual yield of 1.54%.

Additionally, Webster Bank is required to hold FRB of Boston stock equal to 6% of its capital and surplus of which 50% is paid. The remaining 50% is subject to call when deemed necessary by the Federal Reserve System. The FRB capital stock investment is restricted in that there is no market for it, and it can only be redeemed by the FRB. Webster Bank held $60.3 million and $60.1 million of FRB capital stock at June 30, 2021 and December 31, 2020, respectively. The most recent FRB semi-annual cash dividend was paid on June 30, 2021 in an amount equal to an annual yield of 1.50%.

Deposits. Webster Bank offers a wide variety of deposit products for checking and savings (including: ATM and debit card use, direct deposit, ACH payments, mobile banking services, internet-based banking, bank by mail, as well as overdraft protection via line of credit or transfer from another deposit account) designed to meet the transactional, savings, and investment needs for both consumer and business customers throughout its primary market area. HSA Bank, a division of Webster Bank, specifically provides deposit products for HSAs, health reimbursement accounts, flexible spending accounts, and commuter benefits. Webster Bank manages the flow of funds in its deposit accounts and provides a variety of accounts and rates consistent with Federal Deposit Insurance Corporation (FDIC) regulations. Webster Bank’s Retail Pricing Committee and its Commercial and Institutional Loan and Liability Pricing Committee meet regularly to determine pricing and marketing initiatives.

Total deposits were $28.8 billion at June 30, 2021 as compared to $27.3 billion at December 31, 2020. The increase is primarily related to a combination of an increase in transactional accounts of $1.8 billion due to customer PPP loan funding pending utilization, other stimulus effects, and lower customer spending. Refer to Note 9: Deposits in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for additional information.

Borrowings. FHLB advances are utilized as a source of funding for liquidity and interest rate risk management purposes. FHLB advances totaled $0.1 billion at both June 30, 2021 and December 31, 2020. Webster Bank had additional borrowing capacity of approximately $4.5 billion and $4.7 billion from the FHLB at June 30, 2021 and December 31, 2020, respectively, and $1.3 billion from the FRB at both June 30, 2021 and December 31, 2020.

Securities sold under agreements to repurchase, whereby securities are delivered to counterparties under an agreement to repurchase such securities at a fixed price in the future, are also utilized as a source of funding. Unpledged investment securities of $4.5 billion at June 30, 2021 could have been used for collateral on borrowings such as repurchase agreements, or to increase borrowing capacity by approximately $4.2 billion or $4.4 billion at the FHLB or FRB, respectively. Additionally, Webster Bank may utilize term and overnight federal funds to meet short-term liquidity needs.

Long-term debt, which consists of senior fixed-rate notes maturing in 2024 and 2029, and junior subordinated notes maturing in 2033, totaled $0.6 billion at both June 30, 2021 and December 31, 2020.

Total borrowed funds were $1.2 billion at June 30, 2021 as compared to $1.7 billion at December 31, 2020, and represented 3.6% and 5.2% of total assets at June 30, 2021 and December 31, 2020, respectively. The decrease is due to deposit growth exceeding loan and securities growth. For additional information, refer to Note 10: Borrowings in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report.

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Liquidity. Webster meets its cash flow requirements at an efficient cost under various operating environments through proactive liquidity management at both the Holding Company and Webster Bank. Liquidity comes from a variety of cash flow sources, such as operating activities, including principal and interest payments on loans and securities, or financing activities, including unpledged investment securities that can be sold or utilized to secure funding, and new deposits. Webster is committed to maintaining a strong, increasing base of core deposits, consisting of demand, checking, savings, health savings, and money market accounts, to support growth in its loan and lease portfolio. Liquidity is reviewed and managed in order to maintain stable, cost effective funding to promote overall balance sheet strength.

Holding Company Liquidity. The primary source of liquidity at the Holding Company is dividends from Webster Bank. During the six months ended June 30, 2021, Webster Bank paid $120.0 million in dividends to the Holding Company. To a lesser extent, investment income, net proceeds from investment sales, borrowings, and public offerings may provide additional liquidity. The main uses of liquidity are the payment of principal and interest to holders of senior notes and junior subordinated debt, the payment of dividends to preferred and common shareholders, repurchases of its common stock, and purchases of investment securities. There are certain restrictions on the payment of dividends by Webster Bank to the Holding Company, which are described in the section captioned "Supervision and Regulation" in Item 1 of Webster’s 2020 Form 10-K. At June 30, 2021, there was $379.8 million of retained earnings available for the payment of dividends by Webster Bank to the Holding Company.

The Company has a common stock repurchase program authorized by the Board of Directors with $123.4 million of remaining repurchase authority at June 30, 2021. Due to the Company's announcement of its pending merger agreement with Sterling, Webster may not purchase any shares under this program until the transaction is closed. Additionally, the Company periodically acquires common shares outside of the repurchase program related to stock compensation plan activity. During the six months ended June 30, 2021, a total of 71,903 shares of common stock were repurchased at a market value of approximately $4.0 million.

Webster Bank Liquidity. Webster Bank's primary source of funding is core deposits, which are used to support loan portfolio growth. Including time deposits, Webster Bank had a loan to total deposit ratio of 74.4% and 79.2% at June 30, 2021 and December 31, 2020, respectively.

Webster Bank is required by OCC regulations to maintain liquidity sufficient to ensure safe and sound operations. Whether liquidity is adequate, as assessed by the OCC, depends on factors such as the overall asset/liability structure, market conditions, competition, and the nature of the institution’s deposit and loan customers. Webster Bank exceeded all regulatory liquidity requirements as of June 30, 2021. The Company has a detailed liquidity contingency plan designed to respond to liquidity concerns in a prompt and comprehensive manner. The plan is designed to provide early detection of potential problems and details specific actions required to address liquidity stress scenarios.

As an OCC regulated commercial institution, Webster Bank is also required to satisfy certain minimum leverage and risk-based capital requirements, as well as minimum tangible capital requirements. As of June 30, 2021, Webster Bank was in compliance with all applicable capital requirements and exceeded the FDIC requirements for a well-capitalized institution. Refer to Note 12: Regulatory Matters in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for a further discussion of regulatory requirements applicable to the Holding Company and Webster Bank.

The liquidity position of the Company is continuously monitored and adjustments are made to balance between sources and uses of funds, as deemed appropriate. Management is not aware of any events that are reasonably likely to have a material adverse effect on the Company’s liquidity, capital resources, or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity, which if implemented, would have a material adverse effect on the Company.

Off-Balance Sheet Arrangements

Webster engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in the financial statements or are recorded in amounts that differ from the notional amounts. Such transactions are utilized in the normal course of business for general corporate purposes or for customer financing needs. Corporate purpose transactions are structured to manage credit, interest rate, and liquidity risks, or to optimize capital. Customer transactions are structured to manage their funding requirements or facilitate certain trade arrangements. These transactions give rise to elements of credit, interest rate, and liquidity risk. For additional information, refer to Note 2: Variable Interest Entities and Note 19: Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements contained elsewhere in this report.

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Asset/Liability Management and Market Risk

An effective asset/liability management process must balance the risks and rewards from both short-term and long-term interest rate risks in determining management's strategy and action. To facilitate and manage this process, interest rate sensitivity is monitored on an ongoing basis by the Company's ALCO. The impact has not been calculated for scenarios that would require negative interest rates.

The following table summarizes the estimated impact that gradual parallel changes in interest rates of 100 and 200 basis points might have on NII over a twelve month period, starting at June 30, 2021 and December 31, 2020 for each subsequent twelve month period as compared to NII, assuming no change in interest rates:

NII

-200bp

-100bp

+100bp

+200bp

June 30, 2021

n/a

n/a

5.4%

11.6%

December 31, 2020

n/a

n/a

1.7%

4.7%

The following table summarizes the estimated impact that gradual parallel changes in interest rates of 100 and 200 basis points might have on PPNR over a twelve month period, starting at June 30, 2021 and December 31, 2020 for each subsequent twelve month period as compared to PPNR, assuming no change in interest rates:

PPNR

-200bp

-100bp

+100bp

+200bp

June 30, 2021

n/a

n/a

8.8%

19.0%

December 31, 2020

n/a

n/a

2.4%

7.1%

Interest rates are assumed to change up or down in a parallel fashion, and the NII and PPNR results in each scenario are compared to a flat rate based scenario. The flat rate scenario holds the end of period yield curve constant over a twelve month forecasted horizon. Such scenario at both June 30, 2021 and December 31, 2020 assumed a federal funds rate of 0.25%. Asset sensitivity for both NII and PPNR increased at June 30, 2021 as compared to December 31, 2020, primarily due to changes in deposit beta assumptions, which were approved by the Company's ALCO and are reflective of management's current deposit pricing strategy. Loans at floors have increased to approximately $4.0 billion at June 30, 2021, lowering overall asset sensitivity, but is being offset by increased cash levels at the FRB due to elevated deposits. When interest rates start to rise, not all of these loans will immediately lift off of their floors. Due to the lower rate environment at both June 30, 2021 and December 31, 2020, management does not run standard scenarios with negative interest rate assumptions to model the down rate scenarios that were previously modeled when market rates were higher.

Webster can also hold futures, options, and forward foreign currency contracts to minimize the price volatility of certain assets and liabilities. Changes in the market value of these positions are recognized in earnings.

The following table summarizes the estimated impact that yield curve twists or immediate non-parallel changes in interest rates might have on NII for the subsequent twelve month period starting at June 30, 2021 and December 31, 2020:

Short End of the Yield Curve

Long End of the Yield Curve

NII

-100bp

-50bp

+50bp

+100bp

-100bp

-50bp

+50bp

+100bp

June 30, 2021

n/a

n/a

3.6%

7.9%

(3.1)%

(1.5)%

1.4%

2.8%

December 31, 2020

n/a

n/a

0.2%

1.5%

n/a

(2.2)%

1.0%

2.5%

The following table summarizes the estimated impact that immediate non-parallel changes in interest rates might have on PPNR for the subsequent twelve month period starting at June 30, 2021 and December 31, 2020:

Short End of the Yield Curve

Long End of the Yield Curve

PPNR

-100bp

-50bp

+50bp

+100bp

-100bp

-50bp

+50bp

+100bp

June 30, 2021

n/a

n/a

6.0%

13.1%

(5.1)%

(2.6)%

2.4%

4.6%

December 31, 2020

n/a

n/a

(0.3)%

1.7%

n/a

(4.0)%

1.8%

4.4%

These non-parallel scenarios are modeled with the short end of the yield curve moving up or down 50 and 100 basis points, while the long end of the yield curve remains unchanged, and vice versa. The short end of the yield curve is defined as terms of less than eighteen months, whereas the long end of the yield curve is defined as terms of greater than eighteen months. The results above reflect the annualized impact of immediate rate changes.

Sensitivity to the short end of the yield curve for both NII and PPNR increased at June 30, 2021 as compared to December 31, 2020 due to excess cash at the FRB. As rates rise, this cash can be deployed into higher yielding assets. NII and PPNR were less sensitive to changes in the long end of the yield curve at June 30, 2021 as compared to December 31, 2020, due to slower forecast prepayment speeds resulting from increases in the long end of the yield curve, which shortens asset duration for MBS

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and residential mortgages. Due to the lower rate environment at June 30, 2021, management does not run standard scenarios with negative interest rate assumptions to model the down rate scenarios that were modeled at December 31, 2020.

The following table summarizes the estimated economic value of assets, liabilities, and off-balance sheet contracts at June 30, 2021 and December 31, 2020, and the projected change to economic values if interest rates were to instantaneously increase or decrease by 100 basis points:

(Dollars in thousands)			Book Value			Estimated Economic Value			Estimated Economic Value Change
									-100 bp			+100 bp
June 30, 2021
Assets			$	33,753,752		$	33,481,272		n/a			$	(726,608)
Liabilities			30,424,047			29,437,861			n/a			(1,010,173)
Net			$	3,329,705		$	4,043,411		n/a			$	283,565
Net change as % base net economic value									n/a			7.0		%
December 31, 2020
Assets			$	32,590,690		$	32,546,388		n/a			$	(625,173)
Liabilities			29,356,065			29,357,878			n/a			(1,058,460)
Net			$	3,234,625		$	3,188,510		n/a			$	433,287
Net change as % base net economic value									n/a			13.6		%

Changes in economic value can best be described using duration, which is a measure of the price sensitivity of financial instruments for small changes in interest rates. For fixed-rate instruments, it can also be thought of as the weighted-average expected time to receive future cash flows, whereas for floating-rate instruments, it can be thought of as the weighted-average expected time until the next rate reset. The longer the duration, the greater the price sensitivity for given changes in interest rates. Floating-rate instruments may have durations as short as one day, and therefore, may have very little price sensitivity due to changes in interest rates. Increases in interest rates typically reduce the value of fixed-rate assets as future discounted cash flows are worth less at higher discount rates. A liability's value decreases for the same reason in a rising rate environment. A reduction in the value of a liability is a benefit to the Company.

Duration gap is the difference between the duration of assets and the duration of liabilities. A duration gap near zero implies that the balance sheet is matched, and thus would exhibit no change in estimated economic value for a small change in interest rates. Webster's duration gap was negative 2.1 years and negative 1.9 years at June 30, 2021 and December 31, 2020, respectively. A negative duration gap implies that liabilities are longer than assets, and therefore, have more price sensitivity than assets and will reset their interest rates at a slower pace. Consequently, Webster's net estimated economic value would generally be expected to increase when interest rates rise as the benefit of the decreased value of liabilities would more than offset the decreased value of assets. The opposite would generally be expected to occur when interest rates fall. Earnings would also generally be expected to increase when interest rates rise and, in turn, decrease when interest rates fall over the longer term absent the effects of new business booked in the future. At June 30, 2021, long-term rates have risen by 52 basis points as compared to December 31, 2020. This higher starting point lengthens asset duration by decreasing residential loan and MBS prepayment speeds.

These estimates assume that management does not take any additional action to mitigate any positive or negative effects from changing interest rates. Both the earnings and economic values estimates are subject to factors that could cause actual results to differ. Management believes that Webster's interest rate risk position at June 30, 2021 represents a reasonable level of risk given the current interest rate outlook. Management is prepared to take additional action in the event that interest rates do change rapidly.

For a detailed description of the Company's asset/liability management process, refer to the section captioned "Asset/Liability Management and Market Risk" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, included in its Form 10-K for the year ended December 31, 2020.

Impact of Inflation and Changing Prices

The Condensed Consolidated Financial Statements and related data presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results principally in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.

Unlike most industrial companies, substantially all of the assets and liabilities of a banking institution are monetary in nature. As a result, interest rates have a more significant impact on Webster's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services.

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Application of Critical Accounting Policies and Accounting Estimates

The Company’s significant accounting policies are described in Note 1: Summary of Significant Accounting Policies to the Consolidated Financial Statements included in its 2020 Annual Report on Form 10-K. Modifications to significant accounting policies, if made during the year, are described in Note 1: Summary of Significant Accounting Policies to the Condensed Consolidated Financial Statements included in Item 1 of this report. The preparation of the Condensed Consolidated Financial Statements in accordance with GAAP and practices generally applicable to the financial services industry requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates.

Management has identified that the Company's most critical accounting policy is the allowance for credit losses on loans and leases not only because of its importance to the Company’s financial condition and operating results, but also the fact that it requires management’s subjective and complex judgment surrounding the need to make estimates about the effects of matters that are inherently uncertain.

Accounting policies and estimates, including the nature of the estimates and types of assumptions used, are described throughout Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Webster's 2020 Form 10-K, and Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this report.

Recently Issued Accounting Standards Updates (ASUs)

Refer to Note 1: Summary of Significant Accounting Policies in the accompanying Notes to Condensed Consolidated Financial Statements contained elsewhere in this report for a summary of recently issued ASUs and the expected impact on the Company's consolidated financial statements.

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ITEM 1. FINANCIAL STATEMENTS

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

			June 30, 2021						December 31, 2020
(In thousands, except share data)			(Unaudited)
Assets:
Cash and due from banks			$	193,430					$	193,501
Interest-bearing deposits			1,386,463						69,603
Investment securities available-for-sale, at fair value			3,262,893						3,326,776
Investment securities held-to-maturity, net of allowance for credit losses of $382 and $299			5,623,243						5,567,889
Federal Home Loan Bank and Federal Reserve Bank stock			76,874						77,594
Loans held for sale (valued under fair value option $4,335 and $14,000)			4,335						14,012
Loans and leases			21,475,001						21,641,215
Allowance for credit losses on loans and leases			(307,945)						(359,431)
Loans and leases, net			21,167,056						21,281,784
Deferred tax assets, net			78,268						81,286
Premises and equipment, net			215,716						226,743
Goodwill			538,373						538,373
Other intangible assets, net			20,112						22,383
Cash surrender value of life insurance policies			570,380						564,195
Accrued interest receivable and other assets			616,609						626,551
Total assets			$	33,753,752					$	32,590,690
Liabilities and shareholders' equity:
Deposits:
Non-interest-bearing			$	6,751,373					$	6,155,592
Interest-bearing			22,095,593						21,179,844
Total deposits			28,846,966						27,335,436
Securities sold under agreements to repurchase and other borrowings			507,124						995,355
Federal Home Loan Bank advances			138,444						133,164
Long-term debt			565,297						567,663
Operating lease liabilities			154,461						158,280
Accrued expenses and other liabilities			211,755						166,167
Total liabilities			30,424,047						29,356,065
Shareholders’ equity:
Preferred stock, $0.01 par value; Authorized - 3,000,000 shares:
Series F issued and outstanding (6,000 shares)			145,037						145,037
Common stock, $0.01 par value; Authorized - 200,000,0000 shares:
Issued (93,686,311 shares)			937						937
Paid-in capital			1,101,126						1,109,532
Retained earnings			2,203,160						2,077,522
Treasury stock, at cost (3,092,351 and 3,487,389 shares)			(126,445)						(140,659)
Accumulated other comprehensive income, net of tax			5,890						42,256
Total shareholders' equity			3,329,705						3,234,625
Total liabilities and shareholders' equity			$	33,753,752					$	32,590,690

See accompanying Notes to Condensed Consolidated Financial Statements.

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WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

			Three months ended June 30,												Six months ended June 30,
(In thousands, except per share data)			2021						2020						2021						2020
Interest Income:
Interest and fees on loans and leases			$	185,919					$	196,521					$	376,455					$	412,708
Taxable interest and dividends on investments			40,303						50,069						79,917						102,691
Non-taxable interest on investment securities			5,283						5,501						10,616						10,987
Loans held for sale			53						184						144						359
Total interest income			231,558						252,275						467,132						526,745
Interest Expense:
Deposits			5,094						18,805						11,533						46,648
Securities sold under agreements to repurchase and other borrowings			860						980						1,495						4,710
Federal Home Loan Bank advances			534						3,748						1,047						10,617
Long-term debt			4,218						4,335						8,441						9,562
Total interest expense			10,706						27,868						22,516						71,537
Net interest income			220,852						224,407						444,616						455,208
Provision for credit losses			(21,500)						40,000						(47,250)						116,000
Net interest income after provision for credit losses			242,352						184,407						491,866						339,208
Non-interest Income:
Deposit service fees			41,439						35,839						81,908						78,409
Loan and lease related fees			7,862						6,968						16,175						13,464
Wealth and investment services			10,087						7,102						19,490						15,841
Mortgage banking activities			1,319						4,205						3,961						7,098
Increase in cash surrender value of life insurance policies			3,603						3,624						7,136						7,204
Gain on sale of investment securities, net			—						—						—						8
Other income			8,392						2,338						20,789						11,430
Total non-interest income			72,702						60,076						149,459						133,454
Non-interest Expense:
Compensation and benefits			97,754						99,731						205,354						201,618
Occupancy			14,010						14,245						29,660						28,730
Technology and equipment			27,124						27,468						55,640						55,305
Intangible assets amortization			1,132						962						2,271						1,924
Marketing			3,227						3,286						5,731						6,788
Professional and outside services			21,025						6,158						30,801						11,821
Deposit insurance			3,749						5,015						7,705						9,740
Other expense			19,007						19,719						37,848						39,494
Total non-interest expense			187,028						176,584						375,010						355,420
Income before income tax expense			128,026						67,899						266,315						117,242
Income tax expense			33,991						14,802						64,202						25,946
Net income			94,035						53,097						202,113						91,296
Preferred stock dividends and other			(2,480)						(2,368)						(5,028)						(4,530)
Earnings applicable to common shareholders			$	91,555					$	50,729					$	197,085					$	86,766
Earnings per common share:
Basic			$	1.02					$	0.57					$	2.19					$	0.96
Diluted			1.01						0.57						2.19						0.96

See accompanying Notes to Condensed Consolidated Financial Statements.

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WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

			Three months ended June 30,												Six months ended June 30,
(In thousands)			2021						2020						2021						2020
Net income			$	94,035					$	53,097					$	202,113					$	91,296
Other comprehensive (loss) income, net of tax:
Investment securities available-for-sale			(1,473)						61,914						(31,826)						46,225
Derivative instruments			(1,652)						3,601						(6,024)						29,833
Defined benefit pension and other postretirement benefit plans			741						730						1,484						1,459
Other comprehensive (loss) income, net of tax			(2,384)						66,245						(36,366)						77,517
Comprehensive income			$	91,651					$	119,342					$	165,747					$	168,813

See accompanying Notes to Condensed Consolidated Financial Statements.

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WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

			At or for the three months ended June 30, 2021
(In thousands, except per share data)			Preferred Stock			Common Stock			Paid-In Capital			Retained Earnings			Treasury Stock, at cost			Accumulated Other Comprehensive (Loss), Net of Tax			Total Shareholders' Equity
Balance at March 31, 2021			$	145,037		$	937		$	1,105,137		$	2,147,436		$	(133,893)		$	8,274		$	3,272,928
Net income			—			—			—			94,035			—			—			94,035
Other comprehensive (loss), net of tax			—			—			—			—			—			(2,384)			(2,384)
Common stock dividends/equivalents $0.40 per share			—			—			—			(36,342)			—			—			(36,342)
Series F preferred stock dividends $328.125 per share			—			—			—			(1,969)			—			—			(1,969)
Stock-based compensation			—			—			(3,960)			—			7,428			—			3,468
Exercise of stock options			—			—			(51)			—			123			—			72
Common shares acquired from stock compensation plan activity			—			—			—			—			(103)			—			(103)
Balance at June 30, 2021			$	145,037		$	937		$	1,101,126		$	2,203,160		$	(126,445)		$	5,890		$	3,329,705
			At or for the three months ended June 30, 2020
(In thousands, except per share data)			Preferred Stock			Common Stock			Paid-In Capital			Retained Earnings			Treasury Stock, at cost			Accumulated Other Comprehensive (Loss) Income, Net of Tax			Total Shareholders' Equity
Balance at March 31, 2020			$	145,037		$	937		$	1,101,324		$	2,009,541		$	(141,797)		$	(24,800)		$	3,090,242
Net income			—			—			—			53,097			—			—			53,097
Other comprehensive income, net of tax			—			—			—			—			—			66,245			66,245
Common stock dividends/equivalents $0.40 per share			—			—			—			(36,182)			—			—			(36,182)
Series F preferred stock dividends $328.125 per share			—			—			—			(1,969)			—			—			(1,969)
Stock-based compensation			—			—			2,432			—			973			—			3,405
Common shares acquired from stock compensation plan activity			—			—			—			—			(59)			—			(59)
Balance at June 30, 2020			$	145,037		$	937		$	1,103,756		$	2,024,487		$	(140,883)		$	41,445		$	3,174,779
			At or for the six months ended June 30, 2021
(In thousands, except per share data)			Preferred Stock			Common Stock			Paid-In Capital			Retained Earnings			Treasury Stock, at cost			Accumulated Other Comprehensive Income, Net of Tax			Total Shareholders' Equity
Balance at December 31, 2020			$	145,037		$	937		$	1,109,532		$	2,077,522		$	(140,659)		$	42,256		$	3,234,625
Net income			—			—			—			202,113			—			—			202,113
Other comprehensive (loss), net of tax			—			—			—			—			—			(36,366)			(36,366)
Common stock dividends/equivalents $0.80 per share			—			—			—			(72,537)			—			—			(72,537)
Series F preferred stock dividends $656.250 per share			—			—			—			(3,938)			—			—			(3,938)
Stock-based compensation			—			—			(3,311)			—			9,744			—			6,433
Exercise of stock options			—			—			(5,095)			—			8,481			—			3,386
Common shares acquired from stock compensation plan activity			—			—			—			—			(4,011)			—			(4,011)
Balance at June 30, 2021			$	145,037		$	937		$	1,101,126		$	2,203,160		$	(126,445)		$	5,890		$	3,329,705
			At or for the six months ended June 30, 2020
(In thousands, except per share data)			Preferred Stock			Common Stock			Paid-In Capital			Retained Earnings			Treasury Stock, at cost			Accumulated Other Comprehensive (Loss) Income, Net of Tax			Total Shareholders' Equity
Balance at December 31, 2019			$	145,037		$	937		$	1,113,250		$	2,061,352		$	(76,734)		$	(36,072)		$	3,207,770
Cumulative effect of changes in accounting principles			—			—			—			(51,213)			—			—			(51,213)
Net income			—			—			—			91,296			—			—			91,296
Other comprehensive income, net of tax			—			—			—			—			—			77,517			77,517
Common stock dividends/equivalents $0.80 per share			—			—			—			(73,010)			—			—			(73,010)
Series F preferred stock dividends $656.250 per share			—			—			—			(3,938)			—			—			(3,938)
Stock-based compensation			—			—			(9,389)			—			15,403			—			6,014
Exercise of stock options			—			—			(105)			—			223			—			118
Common shares acquired from stock compensation plan activity			—			—			—			—			(3,219)			—			(3,219)
Common stock repurchase program			—			—			—			—			(76,556)			—			(76,556)
Balance at June 30, 2020			$	145,037		$	937		$	1,103,756		$	2,024,487		$	(140,883)		$	41,445		$	3,174,779

See accompanying Notes to Condensed Consolidated Financial Statements.

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WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

			Six months ended June 30,
(In thousands)			2021						2020
Operating Activities:
Net income			$	202,113					$	91,296
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses			(47,250)						116,000
Deferred tax expense (benefit)			16,012						(27,020)
Depreciation and amortization			18,683						18,110
Amortization of premiums/discounts, net			66,312						27,996
Stock-based compensation			6,433						6,014
Gain on sale, net of write-down, of foreclosed and repossessed assets			(141)						(664)
Loss on disposal of premises and equipment			724						256
Gain on sale of investment securities, net			—						(8)
Increase in cash surrender value of life insurance policies			(7,136)						(7,204)
Gain from life insurance policies			(805)						(348)
Mortgage banking activities			(3,961)						(7,098)
Proceeds from sale of loans held for sale			147,735						170,168
Originations of loans held for sale			(135,930)						(175,228)
Net change in right-of-use lease assets			1,336						3,395
Net decrease (increase) in derivative contract assets net of liabilities			106,759						(256,780)
Gain on sale of banking centers			(533)						—
Net (increase) decrease in accrued interest receivable and other assets			(91,177)						14,755
Net increase in accrued expenses and other liabilities			34,057						67,239
Net cash provided by operating activities			313,231						40,879
Investing Activities:
Purchases of available-for-sale investment securities			(504,286)						(479,330)
Proceeds from available-for-sale investment securities maturities/principal repayments			510,484						266,704
Proceeds from sales of available-for-sale investment securities			—						8,963
Purchases of held-to-maturity investment securities			(775,673)						(529,233)
Proceeds from held-to-maturity investment securities maturities/principal repayments			694,951						382,903
Net decrease in Federal Home Loan Bank/Federal Reserve Bank stock			720						54,551
Alternative investments capital call, net			(5,568)						(1,103)
Net decrease (increase) in loans			84,886						(1,797,719)
Proceeds from loans not originated for sale			49,122						3,606
Proceeds from life insurance policies			2,683						1,019
Proceeds from sale of foreclosed and repossessed assets			523						4,667
Proceeds from sale of banking centers			2,413						—
Additions to premises and equipment			(7,407)						(7,817)
Net cash provided by (used for) investing activities			52,848						(2,092,789)
See accompanying Notes to Condensed Consolidated Financial Statements.

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WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited), continued
			Six months ended June 30,
(In thousands)			2021						2020
Financing Activities:
Net increase in deposits			1,510,573						3,030,321
Proceeds from Federal Home Loan Bank advances			180,470						3,450,000
Repayments of Federal Home Loan Bank advances			(175,190)						(4,875,155)
Net (decrease) increase in securities sold under agreements to repurchase and other borrowings			(488,231)						648,374
Dividends paid to common shareholders			(72,349)						(72,806)
Dividends paid to preferred shareholders			(3,938)						(3,938)
Exercise of stock options			3,386						118
Common stock repurchase program			—						(76,556)
Common shares purchased related to stock compensation plan activity			(4,011)						(3,219)
Net cash provided by financing activities			950,710						2,097,139
Net increase in cash and cash equivalents			1,316,789						45,229
Cash and cash equivalents at beginning of period			263,104						257,895
Cash and cash equivalents at end of period			$	1,579,893					$	303,124
Supplemental disclosure of cash flow information:
Interest paid			$	23,113					$	77,757
Income taxes paid			80,873						11,353
Noncash investing and financing activities:
Transfer of loans and leases to foreclosed properties and repossessed assets			$	829					$	2,857
Transfer of loans from loans and leases to loans-held-for-sale			48,395						3,036

See accompanying Notes to Condensed Consolidated Financial Statements.

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Note 1: Summary of Significant Accounting Policies

Nature of Operations

Webster Financial Corporation is a bank holding company and financial holding company under the BHC Act, incorporated under the laws of Delaware in 1986, and headquartered in Waterbury, Connecticut. Webster Bank is the principal consolidated subsidiary of Webster Financial Corporation. Webster Bank, including its HSA Bank division, 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 southern New England and Westchester County, New York. It also offers equipment financing, commercial real estate lending, asset-based lending, and treasury and payment solutions primarily in the eastern U.S. HSA Bank is a leading provider of HSAs, while also delivering health reimbursement arrangements, and flexible spending and commuter benefit account administration services to employers and individuals in all 50 states.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of the Company have been prepared in accordance with GAAP for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements and should be read in conjunction with the Company's Consolidated Financial Statements, and related Notes thereto, for the year ended December 31, 2020, included in our Form 10-K filed with the SEC. In the opinion of management, all necessary adjustments are reflected to present fairly the financial position and results of operations as of the dates and for the periods shown. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of results that may be attained during the full year ending December 31, 2021, or any future period. There have been no changes to the Company's significant accounting policies from those described within that Form 10-K, except as described within the Recently Adopted Accounting Standards Updates section of this note.

Certain prior period amounts have been reclassified to conform to the current year's presentation. These reclassifications did not have a significant impact on the Company's consolidated financial statements.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recently Adopted Accounting Standards Updates

ASU No. 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.

The Accounting Standards Update (the Update) provides simplification to the accounting for income taxes related to a variety of topics and makes minor codification improvements. Changes include a requirement that the effects of an enacted change in tax law be reflected in the computation of the annual effective tax rate in the first interim period that includes the enactment date of the new legislation and clarification on presentation of non-income based taxes.

The Company adopted the Update on January 1, 2021 on a prospective basis. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

ASU No. 2021-01, Reference Rate Reform (Topic 848) - Scope.

The Update clarifies that certain optional expedients and exceptions provided for in ASU No. 2020-04 for applying GAAP to contract modifications and hedging relationships apply to derivatives that are affected by the discounting transition. The amendments are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The Update was effective upon issuance for application on either a retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 22, 2020, or on a prospective basis beginning on January 7, 2021.

The Company adopted the Update on a prospective basis. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

Accounting Standards Issued But Not Yet Adopted

The Company has adopted all applicable Accounting Standards Updates issued by the Financial Accounting Standards Board (FASB) as of June 30, 2021.

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Note 2: Variable Interest Entities

The Company has an investment interest in the following entities that meet the definition of a variable interest entity (VIE).

Consolidated

Rabbi Trust. The Company established a Rabbi Trust to meet the obligations due under its Deferred Compensation Plan for Directors and Officers and to mitigate the expense volatility of the aforementioned plan. The funding of the Rabbi Trust and the discontinuation of the Deferred Compensation Plan for Directors and Officers occurred during 2012.

Investments held in the Rabbi Trust primarily consist of mutual funds that invest in equity and fixed income securities. The Company is considered the primary beneficiary of the Rabbi Trust as it has the power to direct the activities of the Rabbi Trust that most significantly affect the VIE's economic performance and it has the obligation to absorb losses of the VIE that could potentially be significant to the VIE.

The Company consolidates the invested assets of the trust along with the total deferred compensation obligations and includes them in accrued interest receivable and other assets, and accrued expenses and other liabilities, respectively, on the accompanying Condensed Consolidated Balance Sheets. Earnings in the Rabbi Trust, including appreciation or depreciation, are reflected as other non-interest income, and changes in the corresponding liability are reflected as compensation and benefits, on the accompanying Condensed Consolidated Statement of Income. Refer to Note 15: Fair Value Measurements for additional information.

Non-Consolidated

Tax Credit - Finance Investments. The Company makes non-marketable equity investments in entities that finance affordable housing and other community development projects and provide a return primarily through the realization of tax benefits. In most instances, the investments require the funding of capital commitments in the future. While the Company's investment in an entity may exceed 50% of its outstanding equity interests, the entity is not consolidated as the Company is not the primary beneficiary. The Company determined it is not the primary beneficiary due to its inability to direct the activities that most significantly impact the economic performance of the VIEs and the Company does not have the obligation to absorb expected losses or the right to receive residual returns. The Company applies the proportional amortization method to account for its investments in qualified affordable housing projects.

At June 30, 2021 and December 31, 2020, the aggregate carrying value of the Company's tax credit-finance investments was $44.7 million and $37.2 million, respectively, which represents the Company's maximum exposure to loss. At June 30, 2021 and December 31, 2020, unfunded commitments have been recognized, totaling $12.7 million and $10.2 million, respectively, and are included in accrued expenses and other liabilities on the accompanying Condensed Consolidated Balance Sheets.

Webster Statutory Trust. The Company owns all the outstanding common stock of Webster Statutory Trust, a financial vehicle that has issued, and in the future may issue, trust preferred securities. The trust is a VIE in which the Company is not the primary beneficiary. The trust's only assets are junior subordinated debentures issued by the Company, which were acquired by the trust using the proceeds from the issuance of the trust preferred securities and common stock. The junior subordinated debentures are included in long-term debt on the accompanying Condensed Consolidated Balance Sheets, and the related interest expense is reported as interest expense on long-term debt on the accompanying Condensed Consolidated Statements of Income. Refer to Note 10: Borrowings for additional information.

Other Non-Marketable Investments. The Company invests in various alternative investments in which it holds a variable interest. These investments are non-public entities which cannot be redeemed since the Company’s investment is distributed as the underlying equity is liquidated. For these investments, the Company has determined it is not the primary beneficiary due to its inability to direct the activities that most significantly impact the economic performance of the VIEs.

At June 30, 2021 and December 31, 2020, the aggregate carrying value of the Company's other non-marketable investments in VIEs was $44.7 million and $34.3 million, respectively, and the maximum exposure to loss of the Company's other non-marketable investments in VIEs, including unfunded commitments, was $78.2 million and $72.7 million, respectively. Refer to Note 15: Fair Value Measurements for additional information.

The Company's equity interests in Other Non-Marketable Investments, as well as Tax Credit-Finance Investments and Webster Statutory Trust, are included in accrued interest receivable and other assets on the accompanying Condensed Consolidated Balance Sheets. For a description of the Company's accounting policy regarding the consolidation of VIEs, refer to Note 1 to the Consolidated Financial Statements included in its Form 10-K for the year ended December 31, 2020.

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Note 3: Business Developments

Pending Merger

On April 19, 2021, Webster and Sterling announced that their boards of directors approved by unanimous vote a definitive agreement under which the two companies will combine in an all-stock transaction. Under the terms of the agreement, Sterling will merge into Webster, and Sterling's shareholders will receive a fixed exchange ratio of 0.463 of a Webster common share for each share of Sterling common stock owned. In addition, at the effective time of the merger, each outstanding share of Sterling's Series A non-cumulative perpetual preferred stock will be converted into the right to receive a newly created series of Webster preferred stock having substantially the same terms.

The merger is expected to close in the fourth quarter of 2021, subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals and approval by the shareholders of Webster and Sterling. In connection with the proposed transaction, the Company incurred $17.1 million of merger-related expenses during the three months ended June 30, 2021, primarily consisting of professional fees for investment banking, legal, accounting, and employee retention costs. Merger-related expenses are recorded as either professional and outside services, compensation and benefits, or other non-interest expense on the accompanying Condensed Consolidated Statements of Income, and are presented in the Corporate and Reconciling category for segment reporting purposes.

Strategic Initiatives

During the fourth quarter of 2020, the Company launched a strategic plan to drive incremental revenue and cost savings measures across the organization through the consolidation of banking centers and corporate facilities, process automation, ancillary spend reduction, and other organizational actions.

The following table presents the changes in reserves associated with the Company's strategic initiatives for the three and six months ended June 30, 2021:

			Three months ended June 30, 2021
(In thousands)			Severance						ROU Asset						Other						Total
Beginning balance			$	18,370					$	—					$	4,545					$	22,915
Charged to earnings			45						30						1,063						1,138
Charged against assets			—						(30)						(332)						(362)
Cash payments			(4,451)						—						(3,046)						(7,497)
Ending balance			$	13,964					$	—					$	2,230					$	16,194
			Six months ended June 30, 2021
			Severance						ROU Asset						Other						Total
Beginning balance			$	17,675					$	—					$	2,120					$	19,795
Charged to earnings			2,105						209						8,265						10,579
Charged against assets			—						(209)						(1,966)						(2,175)
Cash payments			(5,816)						—						(6,189)						(12,005)
Ending balance			$	13,964					$	—					$	2,230					$	16,194

The reserves associated with strategic initiatives are included in accrued expenses and other liabilities on the accompanying Condensed Consolidated Balance Sheets. Severance costs are recorded as compensation and benefits, Right-of-Use (ROU) lease asset charges are recorded as occupancy expense, and Other is recorded as either occupancy, technology and equipment, professional and outside services, or other non-interest expense on the accompanying Condensed Consolidated Statements of Income. Strategic initiative costs are presented in the Corporate and Reconciling category for segment reporting purposes.

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Note 4: Investment Securities

Held-to-Maturity Securities

A summary of the amortized cost, fair value, and allowance for credit losses on investment securities held-to-maturity is presented below:

			At June 30, 2021
(In thousands)			Amortized Cost (1)			Unrealized Gains			Unrealized Losses			Fair Value						Allowance			Net Carrying Value
Agency CMO			$	61,080		$	1,425		$	(63)		$	62,442					$	—		$	61,080
Agency MBS			2,562,863			96,187			(3,684)			2,655,366						—			2,562,863
Agency CMBS			2,105,924			30,491			(16,545)			2,119,870						—			2,105,924
Municipal bonds and notes			715,195			56,218			—			771,413						382			714,813
CMBS			178,563			6,501			—			185,064						—			178,563
Held-to-maturity securities			$	5,623,625		$	190,822		$	(20,292)		$	5,794,155					$	382		$	5,623,243

			At December 31, 2020
(In thousands)			Amortized Cost (1)			Unrealized Gains			Unrealized Losses			Fair Value						Allowance			Net Carrying Value
Agency CMO			$	91,622		$	1,785		$	(241)		$	93,166					$	—		$	91,622
Agency MBS			2,419,751			137,863			(84)			2,557,530						—			2,419,751
Agency CMBS			2,101,227			60,484			(2,213)			2,159,498						—			2,101,227
Municipal bonds and notes			739,507			60,371			(3)			799,875						299			739,208
CMBS			216,081			9,214			—			225,295						—			216,081
Held-to-maturity securities			$	5,568,188		$	269,717		$	(2,541)		$	5,835,364					$	299		$	5,567,889

(1)Amortized cost excludes accrued interest receivable of $20.9 million and $22.1 million at June 30, 2021 and December 31, 2020, respectively, which is included in accrued interest receivable and other assets on the accompanying Condensed Consolidated Balance Sheets.

Agency securities represent obligations issued by a U.S. government-sponsored enterprise or other federally-related entity and are either explicitly or implicitly guaranteed, and therefore, assumed to be zero loss. Securities with unrealized losses and no allowance are considered to be of high credit quality, and therefore, zero credit loss is recorded as of June 30, 2021. The current unrealized loss position of certain agency securities and non-agency CMBS with no credit loss allowance can be attributed to the changing interest rate environment. An allowance for credit losses on investment securities held-to-maturity is recorded for certain Municipal bonds and notes to account for expected lifetime credit losses.

The following table summarizes the activity in the allowance for credit losses on investment securities held-to-maturity:

			Three months ended June 30,												Six months ended June 30,
(In thousands)			2021						2020						2021						2020
Balance beginning of period			$	308					$	312					$	299					$	—
Adoption of ASU No. 2016-13 (CECL)			—						—						—						397
Provision (benefit) for credit losses			74						(3)						83						(88)
Balance end of period			$	382					$	309					$	382					$	309

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Credit Quality Information

The Company monitors the credit quality of held-to-maturity debt securities through credit ratings provided by Standard & Poor's Rating Services (S&P), Moody's Investor Services (Moody's), Fitch Ratings, Inc., Kroll Bond Rating Agency, or DBRS Inc. Credit ratings express opinions about the credit quality of a security. Investment grade securities are rated BBB- or higher by S&P, or Baa3 or higher by Moody's, and are generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade, labeled as speculative grade by the rating agencies, are considered to have distinctively higher credit risk than investment grade securities. At June 30, 2021, there were no held-to-maturity investment securities rated below investment grade. The securities illustrated below that are not rated are collateralized with U.S. Government obligations, and credit quality indicators are updated at each quarter end.

The following table summarizes credit ratings for the amortized cost of held-to-maturity debt securities according to their lowest public credit rating at June 30, 2021:

			Investment Grade
(In thousands)			Aaa			Aa1			Aa2			Aa3			A1			A2			A3			Baa2						Not Rated
Agency CMOs			$	—		$	61,080		$	—		$	—		$	—		$	—		$	—		$	—					$	—
Agency MBS			—			2,562,863			—			—			—			—			—			—						—
Agency CMBS			—			2,105,924			—			—			—			—			—			—						—
Municipal bonds and notes			208,615			120,173			227,856			108,619			36,087			8,468			2,066			190						3,121
CMBS			178,563			—			—			—			—			—			—			—						—
Total held-to-maturity			$	387,178		$	4,850,040		$	227,856		$	108,619		$	36,087		$	8,468		$	2,066		$	190					$	3,121

At June 30, 2021, there were no held-to-maturity investment securities in non-accrual status.

Contractual Maturities

The amortized cost and fair value of held-to-maturity debt securities presented by contractual maturity are set forth below:

			At June 30, 2021
(In thousands)			Amortized Cost						Fair Value
Due in one year or less			$	380					$	384
Due after one year through five years			4,843						5,163
Due after five years through ten years			285,191						298,449
Due after ten years			5,333,211						5,490,159
Total held-to-maturity debt securities			$	5,623,625					$	5,794,155

For the maturity schedule above, investment securities that are not due at a single maturity date have been categorized based on the maturity date of the underlying collateral. Actual principal cash flows may differ from this maturity date presentation as borrowers have the right to repay obligations with or without prepayment penalties.

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Available-for-Sale Securities

A summary of the amortized cost and fair value of available-for-sale securities is presented below:

			At June 30, 2021
(In thousands)			Amortized Cost(1)			Unrealized Gains			Unrealized Losses			Fair Value(2)
Agency CMO			$	115,985		$	4,366		$	(23)		$	120,328
Agency MBS			1,339,769			47,666			(4,905)			1,382,530
Agency CMBS			939,055			10,509			(8,167)			941,397
CMBS			754,192			1,008			(230)			754,970
CLO			50,000			8			(44)			49,964
Corporate debt			14,569			11			(876)			13,704
Available-for-sale securities			$	3,213,570		$	63,568		$	(14,245)		$	3,262,893
			At December 31, 2020
(In thousands)			Amortized Cost(1)			Unrealized Gains			Unrealized Losses			Fair Value(2)
Agency CMO			$	148,711		$	6,000		$	(98)		$	154,613
Agency MBS			1,389,100			68,598			(289)			1,457,409
Agency CMBS			1,092,430			26,317			(1,514)			1,117,233
CMBS			512,759			1,082			(5,823)			508,018
CLO			76,693			—			(310)			76,383
Corporate debt			14,557			—			(1,437)			13,120
Available-for-sale securities			$	3,234,250		$	101,997		$	(9,471)		$	3,326,776

(1)Amortized cost excludes accrued interest receivable of $6.7 million and $7.5 million at June 30, 2021 and December 31, 2020, respectively, which is included in accrued interest receivable and other assets on the accompanying Condensed Consolidated Balance Sheets.

(2)Fair value represents net carrying value as there is no allowance for credit losses recorded on investment securities available-for-sale, as the securities are high credit quality and investment grade.

Fair Value and Unrealized Losses

The following table provides information on fair value and unrealized losses for the individual available-for-sale securities with an unrealized loss, for which an allowance for credit losses on investment securities available-for-sale has not been recorded, aggregated by classification and length of time that the individual investment securities have been in a continuous unrealized loss position:

			At June 30, 2021
			Less Than Twelve Months									Twelve Months or Longer									Total
(Dollars in thousands)			Fair Value			Unrealized Losses						Fair Value			Unrealized Losses						# of Holdings			Fair Value			Unrealized Losses
Agency CMO			$	3,879		$	(8)					$	2,580		$	(15)					3			$	6,459		$	(23)
Agency MBS			224,986			(4,687)						15,482			(218)						46			240,468			(4,905)
Agency CMBS			421,812			(8,167)						—			—						11			421,812			(8,167)
CMBS			285,792			(125)						117,796			(105)						29			403,588			(230)
CLO			—			—						24,956			(44)						1			24,956			(44)
Corporate debt			—			—						9,422			(876)						2			9,422			(876)
Available-for-sale in unrealized loss position			$	936,469		$	(12,987)					$	170,236		$	(1,258)					92			$	1,106,705		$	(14,245)

			At December 31, 2020
			Less Than Twelve Months									Twelve Months or Longer									Total
(Dollars in thousands)			Fair Value			Unrealized Losses						Fair Value			Unrealized Losses						# of Holdings			Fair Value			Unrealized Losses
Agency CMO			$	13,137		$	(49)					$	5,944		$	(49)					5			$	19,081		$	(98)
Agency MBS			33,742			(219)						4,561			(70)						30			38,303			(289)
Agency CMBS			376,330			(1,514)						—			—						8			376,330			(1,514)
CMBS			409,591			(5,486)						23,167			(337)						38			432,758			(5,823)
CLO			57,728			(265)						18,655			(45)						4			76,383			(310)
Corporate debt			4,100			(166)						9,020			(1,271)						3			13,120			(1,437)
Available-for-sale in unrealized loss position			$	894,628		$	(7,699)					$	61,347		$	(1,772)					88			$	955,975		$	(9,471)

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Unrealized losses on available-for-sale debt securities presented in the previous table have not been recognized in the accompanying Condensed Consolidated Statements of Income based on impairment analysis. The Company does not intend and is not required to sell prior to their anticipated recovery because the securities are investment grade, and the decline in fair value is primarily attributable to higher market rates. Fair value is expected to recover as the securities approach maturity. At June 30, 2021, there were no available-for-sale investment securities in non-accrual status.

Contractual Maturities

The amortized cost and fair value of available-for-sale debt securities presented by contractual maturity are set forth below:

			At June 30, 2021
(In thousands)			Amortized Cost						Fair Value
Due in one year or less			$	—					$	—
Due after one year through five years			2,614						2,703
Due after five through ten years			183,925						184,105
Due after ten years			3,027,031						3,076,085
Total available-for-sale debt securities			$	3,213,570					$	3,262,893

For the maturity schedule above, investment securities that are not due at a single maturity date have been categorized based on the maturity date of the underlying collateral. Actual principal cash flows may differ from this maturity date presentation as borrowers have the right to repay obligations with or without prepayment penalties.

Sales of Available-for Sale Investment Securities

There were no sales of available-for-sale securities during the three and six months ended June 30, 2021, nor during the three months ended June 30, 2020. For the six months ended June 30, 2020, proceeds from sales of available-for-sale securities were $9.0 million, which resulted in realized gains of $8.0 thousand.

Other Information

At June 30, 2021, the Company had a carrying value of $1.5 billion in callable debt securities in its CMBS, CLO, and municipal bond portfolios. The Company considers this prepayment risk in the evaluation of its interest rate risk profile.

Held-to-maturity and available-for-sale investment securities with carrying values of $2.7 billion and $1.4 billion at June 30, 2021, respectively, and $2.6 billion and $1.3 billion at December 31, 2020, respectively, were pledged to secure public funds, trust deposits, repurchase agreements, and for other purposes, as required or permitted by law.

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Note 5: Loans and Leases

The following table summarizes loans and leases:

(In thousands)			At June 30, 2021						At December 31, 2020
Commercial non-mortgage			$	6,843,415					$	7,085,076
Asset-based			943,961						890,598
Commercial real estate			6,410,672						6,322,637
Equipment financing			630,343						602,224
Commercial portfolio			14,828,391						14,900,535
Residential			4,856,302						4,782,016
Home equity			1,677,136						1,802,865
Other consumer			113,172						155,799
Consumer portfolio			6,646,610						6,740,680
Loans and leases (1) (2) (3)			$	21,475,001					$	21,641,215

(1)Loan balances include net deferred (fees)/costs and net (premiums)/discounts of $(13.5) million and $(10.5) million at June 30, 2021 and December 31, 2020, respectively.

(2)At June 30, 2021, the Company had pledged $7.3 billion of eligible loans as collateral to support borrowing capacity at the FHLB of Boston and the FRB of Boston.

(3)Loan balances exclude accrued interest receivable of $54.6 million and $57.8 million at June 30, 2021 and December 31, 2020, respectively, which is included in accrued interest receivable and other assets on the accompanying Condensed Consolidated Balance Sheets.

Equipment financing includes net investment in leases of $222.3 million and $236.1 million at June 30, 2021 and December 31, 2020, respectively. Total undiscounted cash flows, primarily due within the next five years, amounted to $241.7 million at June 30, 2021. This lessor activity resulted in interest income of $1.9 million and $1.8 million for the three months ended June 30, 2021 and 2020, respectively, and $3.8 million and $3.4 million for the six months ended June 30, 2021 and 2020, respectively.

Loans and Leases Aging

The following table summarizes the aging of loans and leases:

			At June 30, 2021
(In thousands)			30-59 Days Past Due and Accruing			60-89 Days Past Due and Accruing			90 or More Days Past Due and Accruing			Non-accrual			Total Past Due and Non-accrual			Current			Total Loans and Leases
Commercial non-mortgage			$	1,017		$	127		$	25		$	49,513		$	50,682		$	6,792,733		$	6,843,415
Asset-based			—			—			—			2,375			2,375			941,586			943,961
Commercial real estate			1,324			364			—			12,695			14,383			6,396,289			6,410,672
Equipment financing			1,578			438			—			8,162			10,178			620,165			630,343
Commercial portfolio			3,919			929			25			72,745			77,618			14,750,773			14,828,391
Residential			3,891			805			—			21,472			26,168			4,830,134			4,856,302
Home equity			5,429			2,604			—			25,975			34,008			1,643,128			1,677,136
Other consumer			479			336			—			412			1,227			111,945			113,172
Consumer portfolio			9,799			3,745			—			47,859			61,403			6,585,207			6,646,610
Total			$	13,718		$	4,674		$	25		$	120,604		$	139,021		$	21,335,980		$	21,475,001

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			At December 31, 2020
(In thousands)			30-59 Days Past Due and Accruing			60-89 Days Past Due and Accruing			90 or More Days Past Due and Accruing			Non-accrual			Total Past Due and Non-accrual			Current			Total Loans and Leases
Commercial non-mortgage			$	612		$	903		$	445		$	64,073		$	66,033		$	7,019,043		$	7,085,076
Asset-based			1,174			—			—			2,594			3,768			886,830			890,598
Commercial real estate			2,400			619			—			21,231			24,250			6,298,387			6,322,637
Equipment financing			5,107			2,308			—			7,299			14,714			587,510			602,224
Commercial portfolio			9,293			3,830			445			95,197			108,765			14,791,770			14,900,535
Residential			4,334			6,330			—			41,081			51,745			4,730,271			4,782,016
Home equity			5,500			1,771			—			31,030			38,301			1,764,564			1,802,865
Other consumer			878			601			—			652			2,131			153,668			155,799
Consumer portfolio			10,712			8,702			—			72,763			92,177			6,648,503			6,740,680
Total			$	20,005		$	12,532		$	445		$	167,960		$	200,942		$	21,440,273		$	21,641,215

The following table provides additional detail related to loans and leases on non-accrual status:

			At June 30, 2021									At December 31, 2020
(In thousands)			Non-accrual			Non-accrual With No Allowance						Non-accrual			Non-accrual With No Allowance
Commercial non-mortgage			$	49,513		$	8,386					$	64,073		$	16,985
Asset-based			2,375			2,375						2,594			—
Commercial real estate			12,695			554						21,231			15,529
Equipment financing			8,162			2,538						7,299			2,983
Commercial portfolio			72,745			13,853						95,197			35,497
Residential			21,472			12,680						41,081			29,843
Home equity			25,975			20,620						31,030			24,091
Other consumer			412			6						652			2
Consumer portfolio			47,859			33,306						72,763			53,936
Total			$	120,604		$	47,159					$	167,960		$	89,433

Interest on non-accrual residential and home equity loans, which would have been recorded as additional interest income had the loans been current in accordance with the original terms, totaled $2.9 million and $3.8 million for the three months ended June 30, 2021 and 2020, respectively, and $6.1 million and $6.8 million for the six months ended June 30, 2021 and 2020, respectively.

Refer to Note 1 to the Consolidated Financial Statements included in the Company's Form 10-K for the year ended December 31, 2020, for details of non-accrual policies.

Allowance for Credit Losses on Loans and Leases

The following table summarizes the activity in, as well as the loan and lease balances that were evaluated for, ACL on loans and leases:

			At or for the three months ended June 30,
			2021												2020
(In thousands)			Commercial Portfolio			Consumer Portfolio			Total						Commercial Portfolio			Consumer Portfolio			Total
ACL on loans and leases:
Balance, beginning of period			$	283,906		$	44,445		$	328,351					$	261,926		$	73,005		$	334,931
(Benefit) provision			(21,077)			(497)			(21,574)						44,605			(4,602)			40,003
Charge-offs			(594)			(2,808)			(3,402)						(15,294)			(2,780)			(18,074)
Recoveries			836			3,734			4,570						283			1,379			1,662
Balance, end of period			$	263,071		$	44,874		$	307,945					$	291,520		$	67,002		$	358,522

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			At or for the six months ended June 30,
			2021												2020
(In thousands)			Commercial Portfolio			Consumer Portfolio			Total						Commercial Portfolio			Consumer Portfolio			Total
ACL on loans and leases:
Balance, beginning of period			$	312,244		$	47,187		$	359,431					$	161,669		$	47,427		$	209,096
Adoption of ASU No. 2016-13 (CECL)			—			—			—						34,024			23,544			57,568
(Benefit) provision			(44,730)			(2,603)			(47,333)						115,848			240			116,088
Charge-offs			(6,915)			(5,782)			(12,697)						(20,868)			(7,367)			(28,235)
Recoveries			2,472			6,072			8,544						847			3,158			4,005
Balance, end of period			$	263,071		$	44,874		$	307,945					$	291,520		$	67,002		$	358,522
Individually evaluated for impairment			11,537			4,560			16,097						15,271			4,484			19,755
Collectively evaluated for impairment			$	251,534		$	40,314		$	291,848					$	276,249		$	62,518		$	338,767
Loan and lease balances:
Individually evaluated for impairment			$	128,937		$	110,521		$	239,458					$	165,010		$	158,146		$	323,156
Collectively evaluated for impairment			14,699,454			6,536,089			21,235,543						14,589,073			6,890,288			21,479,361
Loans and leases			$	14,828,391		$	6,646,610		$	21,475,001					$	14,754,083		$	7,048,434		$	21,802,517

Credit Quality Indicators. To measure credit risk for the commercial portfolio, the Company employs a dual grade credit risk grading system for estimating the PD and LGD. The credit risk grade system assigns a rating to each borrower and to the facility, which together form a Composite Credit Risk Profile. The credit risk grade system categorizes borrowers by common financial characteristics that measure the credit strength of borrowers and facilities by common structural characteristics. The Composite Credit Risk Profile has ten grades, with each grade corresponding to a progressively greater risk of loss. Grades (1) to (6) are considered pass ratings, and grades (7) to (10) are considered criticized, as defined by the regulatory agencies. Risk ratings assigned in order to differentiate risk within the portfolio are reviewed on an ongoing basis and revised to reflect changes in a borrowers’ current financial position and outlook, risk profile, and the related collateral and structural position. Loan officers review updated financial information on at least an annual basis for all pass rated loans to assess the accuracy of the risk grade. Criticized loans undergo more frequent reviews and enhanced monitoring. A (7) - "Special Mention" rating has the potential weakness that, if left uncorrected, may result in deterioration of the repayment prospects for the credit. An (8) - "Substandard" rating has a well-defined weakness that jeopardizes the full repayment of the debt. A (9) - "Doubtful" rating has all of the same weaknesses as a substandard credit with the added characteristic that the weakness makes collection or liquidation in full improbably, given current facts, conditions, and values. Credits when classified as (10) - "Loss", in accordance with regulatory guidelines, are considered uncollectible and charged off.

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The following tables summarize commercial, commercial real estate, and equipment financing loans and leases segregated by origination year and risk rating exposure under the Composite Credit Risk Profile grades at June 30, 2021 and December 31, 2020:

			At June 30, 2021
(In thousands)			2021			2020			2019			2018			2017			Prior			Revolving Loans Amortized Cost Basis			Total
Commercial non-mortgage
Pass			$	1,380,022		$	1,635,700		$	921,484		$	705,932		$	363,486		$	398,483		$	1,068,452		$	6,473,559
Special mention			—			8,973			48,957			56,527			119			16,621			13,134			144,331
Substandard			106			66,050			20,294			66,010			24,011			23,257			25,797			225,525
Commercial non-mortgage			1,380,128			1,710,723			990,735			828,469			387,616			438,361			1,107,383			6,843,415
Asset-based
Pass			3,744			27,329			15,127			19,540			6,431			25,584			779,349			877,104
Special mention			—			—			—			725			—			—			63,757			64,482
Substandard			—			—			2,375			—			—			—			—			2,375
Asset-based			3,744			27,329			17,502			20,265			6,431			25,584			843,106			943,961
Commercial real estate
Pass			447,624			925,584			1,451,104			1,130,513			491,810			1,565,554			24,998			6,037,187
Special mention			440			2,221			9,182			79,499			54,481			113,566			—			259,389
Substandard			—			808			780			21,567			43,028			47,913			—			114,096
Commercial real estate			448,064			928,613			1,461,066			1,231,579			589,319			1,727,033			24,998			6,410,672
Equipment financing
Pass			132,213			219,007			123,041			57,096			19,368			47,107			—			597,832
Special mention			—			885			4,362			64			99			1,165			—			6,575
Substandard			—			9,630			4,943			6,702			2,180			2,481			—			25,936
Equipment financing			132,213			229,522			132,346			63,862			21,647			50,753			—			630,343
Commercial portfolio			$	1,964,149		$	2,896,187		$	2,601,649		$	2,144,175		$	1,005,013		$	2,241,731		$	1,975,487		$	14,828,391

			At December 31, 2020
(In thousands)			2020			2019			2018			2017			2016			Prior			Revolving Loans Amortized Cost Basis			Total
Commercial non-mortgage
Pass			$	2,771,373		$	1,052,080		$	907,110		$	481,321		$	231,280		$	218,001		$	936,592		$	6,597,757
Special mention			32,535			33,969			62,034			435			8,357			13,757			38,496			189,583
Substandard			54,716			51,798			66,324			36,159			15,535			23,957			49,084			297,573
Doubtful			—			—			—			163			—			—			—			163
Commercial non-mortgage			2,858,624			1,137,847			1,035,468			518,078			255,172			255,715			1,024,172			7,085,076
Asset-based
Pass			26,344			15,960			23,123			11,333			10,963			16,484			741,336			845,543
Special mention			—			—			775			—			—			—			41,687			42,462
Substandard			—			2,504			—			—			—			—			89			2,593
Asset-based			26,344			18,464			23,898			11,333			10,963			16,484			783,112			890,598
Commercial real estate
Pass			965,582			1,461,201			1,242,322			527,931			554,630			1,165,331			28,113			5,945,110
Special mention			27			10,385			70,704			37,539			35,617			69,832			—			224,104
Substandard			817			1,132			21,923			73,621			2,962			52,968			—			153,423
Commercial real estate			966,426			1,472,718			1,334,949			639,091			593,209			1,288,131			28,113			6,322,637
Equipment financing
Pass			249,370			135,263			68,092			26,433			43,469			22,879			—			545,506
Special mention			7,934			11,043			6,981			1,220			1,577			788			—			29,543
Substandard			7,483			6,169			5,749			2,460			4,743			571			—			27,175
Equipment financing			264,787			152,475			80,822			30,113			49,789			24,238			—			602,224
Commercial portfolio			$	4,116,181		$	2,781,504		$	2,475,137		$	1,198,615		$	909,133		$	1,584,568		$	1,835,397		$	14,900,535

45

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To measure credit risk for the consumer portfolio, the most relevant credit characteristic is the FICO score, which is a widely used credit scoring system that ranges from 300 to 850. A lower FICO score is indicative of higher credit risk. FICO scores are updated at least quarterly.

The following tables summarize residential and consumer loans segregated by origination year and risk rating exposure under FICO score groupings at June 30, 2021 and December 31, 2020:

			At June 30, 2021
(In thousands)			2021			2020			2019			2018			2017			Prior			Revolving Loans Amortized Cost Basis			Total
Residential
800+			$	216,867		$	443,796		$	189,777		$	41,846		$	140,310		$	871,273		$	—		$	1,903,869
740-799			529,874			526,584			210,767			49,417			100,206			550,153			—			1,967,001
670-739			187,435			158,404			85,483			24,678			49,323			265,179			—			770,502
580-669			15,047			11,478			8,213			4,887			11,003			86,098			—			136,726
579 and below			270			411			37,612			1,831			1,216			36,864			—			78,204
Residential			949,493			1,140,673			531,852			122,659			302,058			1,809,567			—			4,856,302
Home equity
800+			16,759			32,346			12,233			19,613			13,742			66,580			516,121			677,394
740-799			22,141			27,472			10,892			15,092			8,752			43,852			414,822			543,023
670-739			7,528			11,250			7,484			10,464			7,055			42,004			239,265			325,050
580-669			42			1,426			1,923			1,539			2,527			16,935			71,886			96,278
579 and below			110			365			718			984			368			6,214			26,632			35,391
Home equity			46,580			72,859			33,250			47,692			32,444			175,585			1,268,726			1,677,136
Other consumer
800+			287			1,912			4,131			1,542			436			139			6,735			15,182
740-799			354			8,355			13,497			5,221			766			394			8,145			36,732
670-739			2,094			11,331			21,734			6,653			1,312			362			6,554			50,040
580-669			114			1,604			4,060			1,267			490			259			1,337			9,131
579 and below			93			189			294			241			83			47			1,140			2,087
Other consumer			2,942			23,391			43,716			14,924			3,087			1,201			23,911			113,172
Consumer portfolio			999,015			1,236,923			608,818			185,275			337,589			1,986,353			1,292,637			6,646,610
Commercial portfolio			1,964,149			2,896,187			2,601,649			2,144,175			1,005,013			2,241,731			1,975,487			14,828,391
Loans and leases			$	2,963,164		$	4,133,110		$	3,210,467		$	2,329,450		$	1,342,602		$	4,228,084		$	3,268,124		$	21,475,001

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			At December 31, 2020
(In thousands)			2020			2019			2018			2017			2016			Prior			Revolving Loans Amortized Cost Basis			Total
Residential
800+			$	360,336		$	283,755		$	61,048		$	178,849		$	268,044		$	805,537		$	—		$	1,957,569
740-799			654,973			288,173			58,249			133,416			176,286			492,720			—			1,803,817
670-739			199,329			118,620			39,125			75,375			76,666			248,268			—			757,383
580-669			17,151			19,389			8,884			11,843			12,225			96,333			—			165,825
579 and below			—			36,498			673			3,278			3,179			53,794			—			97,422
Residential			1,231,789			746,435			167,979			402,761			536,400			1,696,652			—			4,782,016
Home equity
800+			30,604			16,567			25,205			14,439			17,192			59,956			542,600			706,563
740-799			34,797			13,565			19,715			11,073			12,839			43,802			434,271			570,062
670-739			13,753			8,855			10,761			10,206			7,318			44,025			275,691			370,609
580-669			1,708			2,172			2,660			2,234			2,316			16,680			86,126			113,896
579 and below			129			919			880			1,070			1,073			7,163			30,501			41,735
Home equity			80,991			42,078			59,221			39,022			40,738			171,626			1,369,189			1,802,865
Other consumer
800+			2,827			5,725			2,610			658			115			190			7,171			19,296
740-799			12,317			21,036			8,925			1,493			457			263			5,119			49,610
670-739			14,761			31,952			11,843			2,284			665			228			8,403			70,136
580-669			2,344			5,419			2,360			793			194			124			1,570			12,804
579 and below			608			982			500			183			37			215			1,428			3,953
Other consumer			32,857			65,114			26,238			5,411			1,468			1,020			23,691			155,799
Consumer portfolio			1,345,637			853,627			253,438			447,194			578,606			1,869,298			1,392,880			6,740,680
Commercial portfolio			4,116,181			2,781,504			2,475,137			1,198,615			909,133			1,584,568			1,835,397			14,900,535
Loans and leases			$	5,461,818		$	3,635,131		$	2,728,575		$	1,645,809		$	1,487,739		$	3,453,866		$	3,228,277		$	21,641,215

Individually Assessed Loans and Leases

The following table summarizes individually assessed loans and leases:

			At June 30, 2021
(In thousands)			Unpaid Principal Balance			Amortized Cost			Amortized Cost No Allowance			Amortized Cost With Allowance			Related Allowance
Commercial non-mortgage			$	122,891		$	97,270		$	43,936		$	53,334		$	8,488
Asset-based			2,499			2,375			2,375			—			—
Commercial real estate			24,581			21,130			7,329			13,801			1,808
Equipment financing			8,621			8,162			2,538			5,624			1,241
Residential			72,749			68,823			36,092			32,731			2,770
Home equity			46,364			41,286			30,162			11,124			1,668
Other consumer			412			412			6			406			122
Total			$	278,117		$	239,458		$	122,438		$	117,020		$	16,097

			At December 31, 2020
(In thousands)			Unpaid Principal Balance			Amortized Cost			Amortized Cost No Allowance			Amortized Cost With Allowance			Related Allowance
Commercial non-mortgage			$	172,069		$	119,884		$	55,742		$	64,142		$	9,665
Asset-based			2,989			2,594			—			2,594			50
Commercial real estate			37,177			33,879			25,931			7,948			1,610
Equipment financing			7,770			7,298			2,983			4,315			362
Residential			108,077			98,164			58,915			39,249			3,357
Home equity			109,156			46,950			34,335			12,615			988
Other consumer			2,381			653			2			651			105
Total			$	439,619		$	309,422		$	177,908		$	131,514		$	16,137

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The following table summarizes average amortized cost and interest income recognized for individually assessed loans and leases:

			Three months ended June 30,																								Six months ended June 30,
			2021												2020												2021												2020
(In thousands)			Average Amortized Cost			Accrued Interest Income			Cash Basis Interest Income						Average Amortized Cost			Accrued Interest Income			Cash Basis Interest Income						Average Amortized Cost			Accrued Interest Income			Cash Basis Interest Income						Average Amortized Cost			Accrued Interest Income			Cash Basis Interest Income
Commercial non-mortgage			$	105,811		$	682		$	—					$	136,483		$	875		$	—					$	108,577		$	1,541		$	—					$	115,903		$	1,928		$	—
Asset-based			2,389			—			—						138			—			—						2,485			—			—						139			—			—
Commercial real estate			23,721			126			—						26,017			169			—						27,505			308			—						25,411			315			—
Equipment financing			7,121			—			—						8,373			—			—						7,730			—			—						6,613			—			—
Residential			80,670			577			168						121,488			781			230						83,494			1,216			441						113,806			1,611			860
Home equity			44,120			287			302						50,573			309			413						44,118			509			516						43,863			700			1,243
Other consumer			504			—			—						1,121			—			—						533			—			—						609			17			—
Total			$	264,336		$	1,672		$	470					$	344,193		$	2,134		$	643					$	274,442		$	3,574		$	957					$	306,344		$	4,571		$	2,103

Collateral Dependent Loans and Leases. A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is substantially expected through the operation or sale of collateral. A collateral dependent loan is individually assessed based on the fair value of the collateral, less costs to sell, as of the reporting date. Commercial non-mortgage, asset based, and equipment financing loans are collateralized by equipment, inventory, receivables, or other non-real estate assets. Commercial real estate, residential, and home equity loans are collateralized by real estate. Collateral value on collateral dependent loans and leases was $107.0 million at June 30, 2021 and $150.3 million at December 31, 2020.

The following table summarizes whether, or not, individually assessed loans and leases are collateral dependent:

			At June 30, 2021												At December 31, 2020
(In thousands)			Collateral Dependent			Not Considered Collateral Dependent			Total						Collateral Dependent			Not Considered Collateral Dependent			Total
Commercial non-mortgage			$	18,496		$	78,774		$	97,270					$	11,074		$	108,810		$	119,884
Asset-based			2,375			—			2,375						2,504			90			2,594
Commercial real estate			17,598			3,532			21,130						28,482			5,397			33,879
Equipment financing			—			8,162			8,162						—			7,298			7,298
Residential			17,649			51,174			68,823						33,980			64,184			98,164
Home equity			22,494			18,792			41,286						26,796			20,154			46,950
Other consumer			—			412			412						—			653			653
Total amortized cost			$	78,612		$	160,846		$	239,458					$	102,836		$	206,586		$	309,422

Troubled Debt Restructurings

The following table summarizes information for TDRs:

(In thousands)			At June 30, 2021						At December 31, 2020
Accrual status			$	119,707					$	140,089
Non-accrual status			64,636						95,338
Total TDRs			$	184,343					$	235,427
Specific reserves for TDRs included in the balance of ACL on loans and leases			$	11,726					$	12,728
Additional funds committed to borrowers in TDR status			13,512						12,895

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The portion of TDRs deemed to be uncollectible, $0.3 million and $1.9 million for the three months ended June 30, 2021 and 2020, respectively, and $2.2 million and $3.1 million for the six months ended June 30, 2021 and 2020, respectively, were charged off.

The following table provides information on the type of concession for loans modified as TDRs:

			Three months ended June 30,																		Six months ended June 30,
			2021									2020									2021									2020
			Number of Loans			Post- Modification Recorded Investment (1)						Number of Loans			Post- Modification Recorded Investment (1)						Number of Loans			Post- Modification Recorded Investment (1)						Number of Loans			Post- Modification Recorded Investment (1)
(Dollars in thousands)
Commercial portfolio
Extended Maturity			1			$	50					5			$	475					8			$	740					7			$	579
Maturity/Rate Combined			5			173						—			—						6			210						6			552
Other (2)			1			1						13			12,985						3			114						23			40,122
Consumer portfolio
Extended Maturity			—			—						3			244						2			127						4			508
Maturity/Rate Combined			3			415						2			255						8			1,426						6			711
Other (2)			7			535						80			7,461						16			1,201						94			9,187
Total TDRs			17			$	1,174					103			$	21,420					43			$	3,818					140			$	51,659

(1)Post-modification balances approximate pre-modification balances. The aggregate amount of charge-offs as a result of the restructurings was not significant.

(2)Other includes covenant modifications, forbearance, loans discharged under Chapter 7 bankruptcy, or other concessions.

There were no significant amounts of loans modified as TDRs within the previous 12 months and for which there was a payment default for the three and six months ended June 30, 2021 and 2020.

TDRs in commercial non-mortgage, commercial real estate, and equipment financing segregated by risk rating exposure is as follows:

(In thousands)			At June 30, 2021						At December 31, 2020
Pass			$	8,740					$	12,462
Special Mention			8,670						—
Substandard			72,996						105,070
Doubtful			—						163
Total			$	90,406					$	117,695

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Note 6: Transfers of Financial Assets

The Company sells financial assets in the normal course of business, primarily residential mortgage loans sold to government-sponsored enterprises through established programs and securitizations. Residential mortgage origination fees, adjustments for changes in fair value, and gains or losses on loans sold are included as mortgage banking activities on the accompanying Condensed Consolidated Statements of Income.

The Company may be required to repurchase a loan in the event of certain breaches of the representations and warranties, or in the event of default of the borrower within 90 days of sale, as provided for in the sale agreements. A reserve for loan repurchases provides for estimated losses pertaining to the potential repurchase of loans associated with the Company’s mortgage banking activities. The reserve reflects loan repurchase requests received by the Company for which management evaluates the identity of the counterparty, the vintage of the loans sold, the amount of open repurchase requests, specific loss estimates for each open request, the current level of loan losses in similar vintages held in the residential loan portfolio, and estimated recoveries on the underlying collateral. The reserve also reflects management’s expectation of losses from loan repurchase requests for which the Company has not yet been notified. The provision recorded at the time of the loan sale is netted from the gain or loss recorded in mortgage banking activities, while any incremental provision, post loan sale, is recorded in other non-interest expense in the accompanying Condensed Consolidated Statements of Income.

The following table provides a summary of activity in the reserve for loan repurchases:

			Three months ended June 30,												Six months ended June 30,
(In thousands)			2021						2020						2021						2020
Beginning balance			$	770					$	633					$	747					$	508
Provision charged to expense			20						27						43						49
(Charge-offs/settlements) recoveries, net			(8)						(5)						(8)						98
Ending balance			$	782					$	655					$	782					$	655

The following table provides information for mortgage banking activities:

			Three months ended June 30,												Six months ended June 30,
(In thousands)			2021						2020						2021						2020
Residential mortgage loans held for sale:
Proceeds from sale			$	68,427					$	94,574					$	147,735					$	170,168
Loans sold with servicing rights retained			66,087						89,687						141,778						161,778
Net gain on sale			1,351						2,824						3,460						5,343
Ancillary fees			377						824						918						1,225
Fair value option adjustment			(409)						557						(417)						530

Additionally, certain commercial and consumer loans not originated for sale were sold for cash proceeds of $49.1 million for the six months ended June 30, 2021, resulting in a gain of $718 thousand, and $3.6 million for the six months ended June 30, 2020, resulting in a gain of $256 thousand.

The Company services residential mortgage loans for other entities totaling $2.2 billion at June 30, 2021 and $2.3 billion at December 31, 2020.

The following table presents the changes in carrying value for mortgage servicing assets:

			Three months ended June 30,												Six months ended June 30,
(In thousands)			2021						2020						2021						2020
Beginning balance			$	12,327					$	16,391					$	13,422					$	17,484
Additions			616						779						1,202						1,968
Amortization			(1,442)						(1,669)						(2,932)						(3,376)
Adjustment to valuation allowance			—						(575)						(191)						(1,150)
Ending balance			$	11,501					$	14,926					$	11,501					$	14,926

Loan servicing fees, net of mortgage servicing rights amortization, were $0.2 million and $0.3 million for the three months ended June 30, 2021 and 2020, respectively, and $0.6 million and $0.8 million for the six months ended June 30, 2021 and 2020, respectively, and are included within loan and lease related fees on the accompanying Condensed Consolidated Statements of Income.

Refer to Note 15: Fair Value Measurements for additional information on loans held for sale and mortgage servicing assets.

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Note 7: Leasing

The Company enters into operating leases, as lessee, primarily for office space, banking centers, and certain other operational assets. The Company's operating leases generally have lease terms for periods of 5 to 20 years with various renewal options. The Company does not have any material sub-lease agreements.

The following table summarizes lessee information related to the Company’s operating ROU lease assets and lease liabilities:

			At June 30, 2021
(In thousands)			Operating Leases						Condensed Consolidated Balance Sheet Line Item Location
ROU lease assets			$	126,145					Premises and equipment, net
Lease liabilities			154,461						Operating lease liabilities

The components of operating lease cost and other related information are as follows:

			At or for the three months ended June 30,									At or for the six months ended June 30,
(In thousands)			2021			2020						2021			2020
Lease Cost:
Operating lease costs			$	6,554		$	7,407					$	13,111		$	14,831
Variable lease costs			1,351			1,493						2,651			2,920
Sublease income			(140)			(142)						(271)			(287)
Total operating lease cost			$	7,765		$	8,758					$	15,491		$	17,464
Other Information:
Cash paid for amounts included in the measurement of lease liabilities			$	7,672		$	7,778					$	15,505		$	15,536
ROU lease assets obtained in exchange for new operating lease liabilities			4,160			30						9,558			8,696

The undiscounted scheduled maturities reconciled to total operating lease liabilities are as follows:

(In thousands)			At June 30, 2021
Remainder of 2021			$	12,611
2022			28,144
2023			25,900
2024			23,120
2025			21,154
Thereafter			65,902
Total operating lease liability payments			176,831
Less: Present value adjustment			22,370
Lease liabilities			$	154,461
Weighted-average remaining lease term, in years			7.82
Weighted-average discount rate			3.10%

Refer to Note 5: Loans and Leases for information relating to leases included within the equipment financing portfolio in which the Company is the lessor.

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Note 8: Goodwill and Other Intangible Assets

There has been no change during the three and six months ended June 30, 2021 in the carrying amount for goodwill. For goodwill by reportable segment, refer to Note 17: Segment Reporting.

Other intangible assets by reportable segment consisted of the following:

			At June 30, 2021												At December 31, 2020
(In thousands)			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount						Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
HSA Bank - Core deposits			$	26,625		$	17,080		$	9,545					$	26,625		$	15,618		$	11,007
HSA Bank - Customer relationships			21,000			10,433			10,567						21,000			9,624			11,376
Total other intangible assets			$	47,625		$	27,513		$	20,112					$	47,625		$	25,242		$	22,383

At June 30, 2021, the remaining estimated aggregate future amortization expense for other intangible assets is as follows:

(In thousands)
Remainder of 2021			$	2,242
2022			4,411
2023			4,315
2024			2,084
2025			2,084
Thereafter			4,976

Note 9: Deposits

A summary of deposits by type is as follows:

(In thousands)			At June 30, 2021						At December 31, 2020
Non-interest-bearing:
Demand			$	6,751,373					$	6,155,592
Interest-bearing:
Health savings accounts			7,323,421						7,120,017
Checking			3,843,725						3,652,763
Money market			3,442,319						2,940,215
Savings			5,471,584						4,979,031
Time deposits			2,014,544						2,487,818
Total interest-bearing			$	22,095,593					$	21,179,844
Total deposits			$	28,846,966					$	27,335,436
Time deposits and interest-bearing checking obtained through brokers (included in above balances)			$	112,732					$	720,440
Time deposits that exceed the FDIC limit (included in above balance)			337,866						504,543
Deposit overdrafts reclassified as loan balances			1,050						2,007

The scheduled maturities of time deposits are as follows:

(In thousands)			At June 30, 2021
Remainder of 2021			$	1,253,018
2022			566,946
2023			91,793
2024			39,125
2025			50,983
Thereafter			12,679
Total time deposits			$	2,014,544

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Note 10: Borrowings

Total borrowings of $1.2 billion at June 30, 2021 and $1.7 billion at December 31, 2020 are described in detail below.

The following table summarizes securities sold under agreements to repurchase and other borrowings:

			At June 30, 2021									At December 31, 2020
(Dollars in thousands)			Total Outstanding			Rate						Total Outstanding			Rate
Securities sold under agreements to repurchase (1):
Original maturity of one year or less			$	307,124		0.11		%				$	269,330		0.13		%
Original maturity of greater than one year, non-callable			200,000			1.47						200,000			0.84
Total securities sold under agreements to repurchase			507,124			0.65						469,330			0.43
Fed funds purchased			—			—						526,025			0.08
Securities sold under agreements to repurchase and other borrowings			$	507,124		0.65						$	995,355		0.25

(1)The Company has right of offset with respect to all repurchase agreement assets and liabilities. Total securities sold under agreements to repurchase are presented as gross transactions, as only liabilities are outstanding for the periods presented.

Repurchase agreements are used as a source of borrowed funds and are collateralized by agency mortgage-backed securities. Repurchase agreement counterparties are limited to primary dealers in government securities and commercial/municipal customers through the Corporate Treasury function.

The following table provides information for FHLB advances:

			At June 30, 2021									At December 31, 2020
(Dollars in thousands)			Total Outstanding			Weighted- Average Contractual Coupon Rate						Total Outstanding			Weighted- Average Contractual Coupon Rate
Maturing within 1 year			$	25,000		0.33		%				$	25,000		0.38		%
After 1 but within 2 years			100			—						110			—
After 2 but within 3 years			208			2.95						215			2.95
After 3 but within 4 years			100,000			1.50						50,000			1.59
After 4 but within 5 years			—			—						50,000			1.42
After 5 years			13,136			2.56						7,839			2.66
FHLB advances			$	138,444		1.39						$	133,164		1.36
Aggregate carrying value of assets pledged as collateral			$	7,004,625								$	7,387,054
Remaining borrowing capacity			4,528,972									4,689,642

Webster Bank is in compliance with FHLB collateral requirements for the periods presented. Eligible collateral, primarily certain residential and commercial real estate loans, has been pledged to secure FHLB advances.

The following table summarizes long-term debt:

(Dollars in thousands)						At June 30, 2021						At December 31, 2020
4.375%			Senior fixed-rate notes due February 15, 2024			$	150,000					$	150,000
4.100%			Senior fixed-rate notes due March 25, 2029 (1)			341,488						344,164
Junior subordinated debt Webster Statutory Trust I floating-rate notes due September 17, 2033 (2)						77,320						77,320
Total notes and subordinated debt						568,808						571,484
Discount on senior fixed-rate notes						(1,084)						(1,193)
Debt issuance cost on senior fixed-rate notes						(2,427)						(2,628)
Long-term debt						$	565,297					$	567,663

(1)The Company de-designated its fair value hedging relationship on these notes. A basis adjustment is included in the carrying value, which is being amortized over the remaining life of the notes.

(2)The interest rate on Webster Statutory Trust I floating-rate notes, which varies quarterly based on 3-month LIBOR plus 2.95%, was 3.07% at June 30, 2021 and 3.18% at December 31, 2020.

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Note 11: Accumulated Other Comprehensive Income, Net of Tax

The following table summarizes the changes in each component of accumulated other comprehensive income (loss), net of tax:

			Three months ended June 30, 2021															Six months ended June 30, 2021
(In thousands)			Securities Available For Sale			Derivative Instruments			Defined Benefit Pension and Other Postretirement Benefit Plans			Total						Securities Available For Sale			Derivative Instruments			Defined Benefit Pension and Other Postretirement Benefit Plans			Total
Beginning balance			$	37,071		$	15,546		$	(44,343)		$	8,274					$	67,424		$	19,918		$	(45,086)		$	42,256
Other comprehensive (loss) before reclassifications			(1,473)			(2,475)			—			(3,948)						(31,826)			(7,645)			—			(39,471)
Amounts reclassified from accumulated other comprehensive (loss)			—			823			741			1,564						—			1,621			1,484			3,105
Net current-period other comprehensive (loss) income, net of tax			(1,473)			(1,652)			741			(2,384)						(31,826)			(6,024)			1,484			(36,366)
Ending balance			$	35,598		$	13,894		$	(43,602)		$	5,890					$	35,598		$	13,894		$	(43,602)		$	5,890

			Three months ended June 30, 2020															Six months ended June 30, 2020
(In thousands)			Securities Available For Sale			Derivative Instruments			Defined Benefit Pension and Other Postretirement Benefit Plans			Total						Securities Available For Sale			Derivative Instruments			Defined Benefit Pension and Other Postretirement Benefit Plans			Total
Beginning balance			$	1,562		$	17,048		$	(43,410)		$	(24,800)					$	17,251		$	(9,184)		$	(44,139)		$	(36,072)
Other comprehensive income before reclassifications			61,914			2,186			—			64,100						46,231			26,965			—			73,196
Amounts reclassified from accumulated other comprehensive income			—			1,415			730			2,145						(6)			2,868			1,459			4,321
Net current-period other comprehensive income, net of tax			61,914			3,601			730			66,245						46,225			29,833			1,459			77,517
Ending balance			$	63,476		$	20,649		$	(42,680)		$	41,445					$	63,476		$	20,649		$	(42,680)		$	41,445

The following table further details the amounts reclassified from accumulated other comprehensive income (loss):

(In thousands)			Three months ended June 30,												Six months ended June 30,												Associated Line Item on the Condensed Consolidated Statements of Income
AOCI (AOCL) Component			2021						2020						2021						2020
Securities available-for-sale:
Unrealized gains on investment securities			$	—					$	—					$	—					$	8					Gain on sale of investment securities, net
Tax expense			—						—						—						(2)						Income tax expense
Net of tax			$	—					$	—					$	—					$	6
Derivative instruments:
Hedge terminations			$	(1,037)					$	(1,088)					$	(2,042)					$	(2,261)					Interest expense
Premium amortization			(77)						(828)						(153)						(1,622)						Interest income
Tax benefit			291						501						574						1,015						Income tax expense
Net of tax			$	(823)					$	(1,415)					$	(1,621)					$	(2,868)
Defined benefit pension and other postretirement benefit plans:
Amortization of net loss			$	(1,007)					$	(990)					$	(2,015)					$	(1,980)					Other non-interest expense
Tax benefit			266						260						531						521						Income tax expense
Net of tax			$	(741)					$	(730)					$	(1,484)					$	(1,459)

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Note 12: Regulatory Matters

Capital Requirements

Webster Financial Corporation is subject to regulatory capital requirements administered by the Federal Reserve System, while Webster Bank is subject to regulatory capital requirements administered by the OCC. Regulatory authorities can initiate certain mandatory actions if either Webster Financial Corporation or Webster Bank fail to meet minimum capital requirements, which could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, both Webster Financial Corporation and Webster Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. These quantitative measures require minimum amounts and ratios to ensure capital adequacy.

Total risk-based capital is comprised of three categories as defined by Basel III capital rules: CET1 capital, Tier 1 capital, and Tier 2 capital. CET1 capital includes common shareholders' equity, less deductions for goodwill, other intangibles, and certain deferred tax adjustments. For purposes of CET1 capital, common shareholders' equity excludes AOCI (AOCL) components as permitted by the opt-out election taken by Webster upon adoption of Basel III. Tier 1 capital is comprised of CET1 capital plus perpetual preferred stock, while Tier 2 capital includes qualifying subordinated debt and qualifying allowance for credit losses, that together equal total capital.

The following table provides information on the capital ratios for Webster Financial Corporation and Webster Bank:

			At June 30, 2021
			Actual (1)									Minimum Requirement									Well Capitalized
(Dollars in thousands)			Amount			Ratio						Amount			Ratio						Amount			Ratio
Webster Financial Corporation
CET1 risk-based capital			$	2,664,879		11.66		%				$	1,028,123		4.5		%				$	1,485,067		6.5		%
Total risk-based capital			3,130,000			13.70						1,827,774			8.0						2,284,718			10.0
Tier 1 risk-based capital			2,809,916			12.30						1,370,831			6.0						1,827,774			8.0
Tier 1 leverage capital			2,809,916			8.53						1,317,538			4.0						1,646,923			5.0
Webster Bank
CET1 risk-based capital			$	2,897,545		12.69		%				$	1,027,620		4.5		%				$	1,484,340		6.5		%
Total risk-based capital			3,140,309			13.75						1,826,881			8.0						2,283,601			10.0
Tier 1 risk-based capital			2,897,545			12.69						1,370,160			6.0						1,826,881			8.0
Tier 1 leverage capital			2,897,545			8.80						1,317,166			4.0						1,646,458			5.0

			At December 31, 2020
			Actual									Minimum Requirement									Well Capitalized
(Dollars in thousands)			Amount			Ratio						Amount			Ratio						Amount			Ratio
Webster Financial Corporation
CET1 risk-based capital			$	2,543,131		11.35		%				$	1,008,512		4.5		%				$	1,456,739		6.5		%
Total risk-based capital			3,045,652			13.59						1,792,910			8.0						2,241,137			10.0
Tier 1 risk-based capital			2,688,168			11.99						1,344,682			6.0						1,792,910			8.0
Tier 1 leverage capital			2,688,168			8.32						1,291,980			4.0						1,614,975			5.0
Webster Bank
CET1 risk-based capital			$	2,791,474		12.46		%				$	1,008,027		4.5		%				$	1,456,039		6.5		%
Total risk-based capital			3,071,505			13.71						1,792,048			8.0						2,240,060			10.0
Tier 1 risk-based capital			2,791,474			12.46						1,344,036			6.0						1,792,048			8.0
Tier 1 leverage capital			2,791,474			8.65						1,291,415			4.0						1,614,268			5.0

(1)In accordance with regulatory capital rules, the Company elected an option to delay the estimated impact of the adoption of CECL on its regulatory capital over a two-year deferral period and subsequent three-year transition period ending December 31, 2024. As a result, capital ratios and amounts exclude the impact of the increased allowance for credit losses on loans, held-to-maturity debt securities, and unfunded loan commitments attributed to the adoption of CECL, adjusted for an approximation of the after-tax provision for credit losses attributable to CECL relative to the incurred loss methodology during the deferral period.

Dividend Restrictions. Webster Financial Corporation is dependent upon dividends from Webster Bank to provide funds for its cash requirements, including payments of dividends to shareholders. Dividends paid by the Bank are subject to various federal and state regulatory limitations. Express approval by the OCC is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels, or would exceed the net income for that year combined with the undistributed net income for the preceding two years. Webster Bank paid $120.0 million in dividends to Webster Financial Corporation during the six months ended June 30, 2021, whereas no dividends were paid during the six months ended June 30, 2020.

Cash Restrictions. Webster Bank is required by Federal Reserve System regulations to hold cash reserve balances on hand or with a Federal Reserve Bank. To address liquidity concerns due to COVID-19, the Federal Reserve reset the requirement to zero. The reserve requirement ratio remains subject to adjustment as conditions warrant.

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Note 13: Earnings Per Common Share

A reconciliation of the calculation of basic and diluted earnings per common share is as follows:

			Three months ended June 30,												Six months ended June 30,
(In thousands, except per share data)			2021						2020						2021						2020
Earnings for basic and diluted earnings per common share:
Net income			$	94,035					$	53,097					$	202,113					$	91,296
Less: Preferred stock dividends			1,969						1,969						3,938						3,938
Net income available to common shareholders			92,066						51,128						198,175						87,358
Less: Earnings applicable to participating securities (1)			511						399						1,090						592
Earnings applicable to common shareholders			$	91,555					$	50,729					$	197,085					$	86,766
Shares:
Weighted-average common shares outstanding - basic			90,027						89,485						89,918						90,206
Effect of dilutive securities			194						85						246						185
Weighted-average common shares outstanding - diluted			90,221						89,570						90,164						90,391
Earnings per common share (1):
Basic			$	1.02					$	0.57					$	2.19					$	0.96
Diluted			1.01						0.57						2.19						0.96

(1)Earnings per common share amounts under the two-class method for unvested time-based restricted stock with non-forfeitable dividends and dividend rights are computed the same as the presentation above.

Dilutive Securities

Webster maintains stock compensation plans under which restricted stock, restricted stock units, non-qualified stock options, incentive stock options, or stock appreciation rights may be granted to employees and directors. The effect of dilutive securities for the periods presented is attributed to outstanding stock options and non-participating, performance-based restricted stock.

Potential common shares from non-participating, performance-based restricted stock of 55 thousand and 192 thousand for the three months ended June 30, 2021 and 2020, respectively, and 28 thousand and 114 thousand for the six months ended June 30, 2021 and 2020, respectively, are excluded from the effect of dilutive securities because they would have been anti-dilutive under the treasury stock method.

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Note 14: Derivative Financial Instruments

Derivative Positions and Offsetting

Derivatives Designated in Hedge Relationships. Interest rate swaps allow the Company to change the fixed or variable nature of an interest rate without the exchange of the underlying notional amount. Certain pay fixed/receive variable interest rate swaps are designated as cash flow hedges to effectively convert variable-rate debt into fixed-rate debt, while certain receive fixed/pay variable interest rate swaps are designated as fair value hedges to effectively convert fixed-rate long-term debt into variable-rate debt. Certain purchased options are designated as cash flow hedges. Purchased options allow the Company to limit the potential adverse impact of variable interest rates by establishing a cap or floor rate in exchange for an upfront premium. The purchased options designated as cash flow hedges represent interest rate caps where payment is received from the counterparty if interest rates rise above the cap rate, and interest rate floors where payment is received from the counterparty when interest rates fall below the floor rate.

Derivatives Not Designated in Hedge Relationships. The Company also enters into other derivative transactions to manage economic risks, but does not designate the instruments in hedge relationships. Further, the Company enters into derivative contracts to accommodate customer needs. Derivative contracts with customers are offset with dealer counterparty transactions structured with matching terms to ensure minimal impact on earnings.

The following table presents the notional amounts and fair values of derivative positions:

			At June 30, 2021																		At December 31, 2020
			Asset Derivatives									Liability Derivatives									Asset Derivatives									Liability Derivatives
(In thousands)			Notional Amounts			Fair Value						Notional Amounts			Fair Value						Notional Amounts			Fair Value						Notional Amounts			Fair Value
Designated as hedging instruments:
Interest rate derivatives (1)			$	1,000,000		$	29,179					$	25,000		$	14					$	1,000,000		$	39,641					$	25,000		$	103
Not designated as hedging instruments:
Interest rate derivatives (1)			4,526,290			196,438						4,422,119			16,137						4,533,441			292,096						4,356,339			11,874
Mortgage banking derivatives (2)			32,078			263						1,294			2						40,771			855						—			—
Other (3)			108,871			354						309,867			139						108,987			264						360,497			377
Total not designated as hedging instruments			4,667,239			197,055						4,733,280			16,278						4,683,199			293,215						4,716,836			12,251
Gross derivative instruments, before netting			$	5,667,239		226,234						$	4,758,280		16,292						$	5,683,199		332,856						$	4,741,836		12,354
Less: Master netting agreements						4,724									4,724									7,522									7,522
Cash collateral						30,234									2,996									33,043									4,485
Total derivative instruments, after netting						$	191,276								$	8,572								$	292,291								$	347

(1)Balances related to Chicago Mercantile Exchange (CME), excluding accrued interest, are presented as a single unit of account. In accordance with its rule book, CME legally characterizes variation margin payments as settlement of derivatives rather than collateral against derivative positions. Notional amounts of interest rate swaps cleared through CME include $0.2 billion and $0.1 billion for asset derivatives and $3.0 billion and $3.2 billion for liability derivatives at June 30, 2021 and December 31, 2020, respectively. The related fair values approximate zero.

(2)Notional amounts related to residential loans exclude approved floating rate commitments of $1.2 million at June 30, 2021.

(3)Other derivatives include foreign currency forward contracts related to lending arrangements and customer hedging activity, a Visa equity swap transaction, and risk participation agreements. Notional amounts of risk participation agreements include $83.1 million and $80.5 million for asset derivatives and $306.8 million and $338.9 million for liability derivatives at June 30, 2021 and December 31, 2020, respectively, that have insignificant related fair values.

The following table presents fair value positions transitioned from gross to net upon applying contractual counterparty netting agreements:

			At June 30, 2021
(In thousands)			Gross Amount			Offset Amount			Net Amount on Balance Sheet						Amounts Not Offset			Net Amounts
Asset derivatives			$	34,958		$	34,958		$	—					$	134		$	134
Liability derivatives			7,720			7,720			—						1,915			1,915
			At December 31, 2020
(In thousands)			Gross Amount			Offset Amount			Net Amount on Balance Sheet						Amounts Not Offset			Net Amounts
Asset derivatives			$	40,565		$	40,565		$	—					$	785		$	785
Liability derivatives			12,007			12,007			—						1,247			1,247

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Derivative Activity

The following table presents the income statement effect of derivatives designated as cash flow hedges:

			Recognized In			Three months ended June 30,												Six months ended June 30,
(In thousands)			Net Interest Income			2021						2020						2021						2020
Interest rate derivatives			Long-term debt			$	123					$	1,228					$	244					$	2,349
Interest rate derivatives			Interest and fees on loans and leases			(2,645)						(1,837)						(5,227)						(1,097)
Net recognized on cash flow hedges						$	(2,522)					$	(609)					$	(4,983)					$	1,252

The following table presents information related to a fair value hedging adjustment:

Condensed Consolidated Balance Sheet Line Item in Which Hedged Item is Located			Carrying Amount of Previously Hedged Item												Cumulative Amount of Fair Value Hedging Adjustment Included in Carrying Amount
(In thousands)			At June 30, 2021						At December 31, 2020						At June 30, 2021						At December 31, 2020
Long-term debt			$	341,488					$	344,164					$	41,488					$	44,164

The following table presents the effect on the income statement for derivatives not designated as hedging instruments:

			Recognized In			Three months ended June 30,												Six months ended June 30,
(In thousands)			Non-interest Income			2021						2020						2021						2020
Interest rate derivatives			Other income			$	(239)					$	(2,523)					$	4,405					$	3,403
Mortgage banking derivatives			Mortgage banking activities			(212)						633						(594)						1,626
Other			Other income			(303)						(1,014)						169						897
Total not designated as hedging instruments						$	(754)					$	(2,904)					$	3,980					$	5,926

Purchased options designated as cash flow hedges exclude time-value premiums from the assessment of hedge effectiveness. Time-value premiums are amortized on a straight-line basis. At June 30, 2021, the remaining unamortized balance of time-value premiums was $8.6 million.

Over the next twelve months, an estimated $10.5 million decrease to interest expense will be reclassified from AOCI (AOCL) relating to cash flow hedges, and an estimated $0.3 million increase to interest expense will be reclassified from AOCI (AOCL) relating to hedge terminations. At June 30, 2021, the remaining unamortized loss on terminated cash flow hedges is $0.8 million. The maximum length of time over which forecasted transactions are hedged is 3.1 years.

Additional information about cash flow hedge activity impacting AOCI (AOCL) and the related amounts reclassified to interest expense is provided in Note 11: Accumulated Other Comprehensive Income, Net of Tax. Information about the valuation methods used to measure the fair value of derivatives is provided in Note 15: Fair Value Measurements.

Derivative Exposure

At June 30, 2021, the Company had $72.7 million in initial margin collateral posted at CME. In addition, $32.2 million of cash collateral received is included in cash and due from banks on the accompanying Condensed Consolidated Balance Sheets.

Webster regularly evaluates the credit risk of its derivative customers, taking into account the likelihood of default, net exposures, and remaining contractual life, among other related factors. Credit risk exposure is mitigated as transactions with customers are generally secured by the same collateral of the underlying transactions. Current net credit exposure relating to interest rate derivatives with Webster Bank customers was $191.0 million at June 30, 2021. In addition, the Company monitors potential future exposure, representing its best estimate of exposure to remaining contractual maturity. The potential future exposure relating to interest rate derivatives with Webster Bank customers totaled $36.0 million at June 30, 2021. The Company incorporates a credit valuation adjustment (CVA) and debit valuation adjustment (DVA) to reflect nonperformance risk in the fair value measurement of its derivatives. Various factors impact changes in the CVA and DVA over time, including changes in the credit spreads of the parties to the contracts, as well as changes in market rates and volatilities, which affect the total expected exposure of the derivative instruments.

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Note 15: Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined using quoted market prices. However, in many instances, quoted market prices are not available. In such instances, fair values are determined using appropriate valuation techniques. Various assumptions and observable inputs must be relied upon in applying these techniques. Accordingly, categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. As such, the fair value estimates may not be realized in an immediate transfer of the respective asset or liability.

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings or any part of a particular financial instrument. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These factors are subjective in nature and involve uncertainties and matters of significant judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair Value Hierarchy

The three levels within the fair value hierarchy are as follows:

•Level 1: Valuation is based upon unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

•Level 2: Fair value is calculated using significant inputs other than quoted market prices that are directly or indirectly observable for the asset or liability. The valuation may rely on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, rate volatility, prepayment speeds, credit ratings,) or inputs that are derived principally or corroborated by market data, correlation, or other means.

•Level 3: Inputs for determining the fair value of the respective assets or liabilities are not observable. Level 3 valuations are reliant upon pricing models and techniques that require significant management judgment or estimation.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Available-for-Sale Investment Securities. When quoted prices are available in an active market, the Company classifies available-for-sale investment securities within Level 1 of the fair value hierarchy. U.S. Treasury Bills are classified within Level 1 of the fair value hierarchy.

When quoted market prices are not available, the Company employs an independent pricing service that utilizes matrix pricing to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and respective terms and conditions for debt instruments. Management maintains procedures to monitor the pricing service's results and has an established process to challenge their valuations, or methodologies, that appear unusual or unexpected. Available-for-Sale investment securities which include Agency CMO, Agency MBS, Agency CMBS, CMBS, CLO, and corporate debt, are classified within Level 2 of the fair value hierarchy.

Derivative Instruments. Foreign exchange contracts are valued based on unadjusted quoted prices in active markets and classified within Level 1 of the fair value hierarchy.

All other derivative instruments are valued using third-party valuation software, which considers the present value of cash flows discounted using observable forward rate assumptions. The resulting fair value is validated against valuations performed by independent third parties and are classified within Level 2 of the fair value hierarchy.

Mortgage Banking Derivatives. Forward sales of mortgage loans and mortgage-backed securities are utilized by the Company in its efforts to manage risk of loss associated with its mortgage loan commitments and mortgage loans held for sale. Prior to closing and funding certain single-family residential mortgage loans, an interest rate lock commitment is generally extended to the borrower. During the period from commitment date to closing date, the Company is subject to the risk that market rates of interest may change. If market rates rise, investors generally will pay less to purchase such loans resulting in a reduction in the gain on sale of the loans or, possibly, a loss. In an effort to mitigate such risk, forward delivery sales commitments are established, under which the Company agrees to deliver whole mortgage loans to various investors or issue mortgage-backed securities. The fair value of mortgage banking derivatives is determined based on current market prices for similar assets in the secondary market and, therefore, classified within Level 2 of the fair value hierarchy.

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Originated Loans Held For Sale. Residential mortgage loans typically are classified as held for sale upon origination based on management's intent to sell such loans. The Company generally records residential mortgage loans held for sale under the fair value option of Accounting Standards Codification (ASC) Topic 825 "Financial Instruments." Electing to measure originated loans held for sale at fair value reduces certain timing differences and better matches changes in the value of these assets with changes in the value of the derivatives used as an economic hedge on these assets. The fair value of residential mortgage loans held for sale is based on quoted market prices of similar loans sold in conjunction with securitization transactions. Accordingly, such loans are classified within Level 2 of the fair value hierarchy.

The following table compares the fair value to unpaid principal balance of assets accounted for under the fair value option:

			At June 30, 2021																		At December 31, 2020
(In thousands)			Fair Value						Unpaid Principal Balance						Difference						Fair Value						Unpaid Principal Balance						Difference
Originated loans held for sale			$	4,335					$	4,845					$	(510)					$	14,000					$	13,511					$	489

Investments Held in Rabbi Trust. Investments held in the Rabbi Trust primarily include open-ended mutual funds that invest in equity and fixed income securities. Shares of mutual funds are valued based on net asset value, which represents quoted market prices for the underlying shares held in the mutual funds. Therefore, investments held in the Rabbi Trust are classified within Level 1 of the fair value hierarchy. The Company has elected to measure the investments held in the Rabbi Trust at fair value. The cost basis of the investments held in the Rabbi Trust is $1.6 million at June 30, 2021.

Alternative Investments. Equity investments have a readily determinable fair value when quoted prices are available in an active market. Accordingly, such alternative investments are classified within Level 1 of the fair value hierarchy.

Equity investments that do not have a readily available fair value may qualify for net asset value (NAV) practical expedient measurement, based on specific requirements. The Company's alternative investments accounted for at NAV consist of investments in non-public entities that generally cannot be redeemed since the Company’s investments are distributed as the underlying equity is liquidated. Alternative investments recorded at NAV are not classified within the fair value hierarchy. At June 30, 2021, these alternative investments had a remaining unfunded commitment of $17.6 million.

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A summary of the financial assets and liabilities measured at fair value on a recurring basis is as follows:

			At June 30, 2021
(In thousands)			Level 1			Level 2			Level 3						Total
Financial assets held at fair value:
Agency CMO			$	—		$	120,328		$	—					$	120,328
Agency MBS			—			1,382,530			—						1,382,530
Agency CMBS			—			941,397			—						941,397
CMBS			—			754,970			—						754,970
CLO			—			49,964			—						49,964
Corporate debt			—			13,704			—						13,704
Total available-for-sale investment securities			—			3,262,893			—						3,262,893
Gross derivative instruments, before netting (1)			317			225,917			—						226,234
Originated loans held for sale			—			4,335			—						4,335
Investments held in Rabbi Trust			3,617			—			—						3,617
Alternative investments (2)			—			—			—						18,002
Total financial assets held at fair value			$	3,934		$	3,493,145		$	—					$	3,515,081
Financial liabilities held at fair value:
Gross derivative instruments, before netting (1)			$	51		$	16,241		$	—					$	16,292

			At December 31, 2020
(In thousands)			Level 1			Level 2			Level 3						Total
Financial assets held at fair value:
Agency CMO			$	—		$	154,613		$	—					$	154,613
Agency MBS			—			1,457,409			—						1,457,409
Agency CMBS			—			1,117,233			—						1,117,233
CMBS			—			508,018			—						508,018
CLO			—			76,383			—						76,383
Corporate debt			—			13,120			—						13,120
Total available-for-sale investment securities			—			3,326,776			—						3,326,776
Gross derivative instruments, before netting (1)			205			332,651			—						332,856
Originated loans held for sale			—			14,000			—						14,000
Investments held in Rabbi Trust			4,811			—			—						4,811
Alternative investments (2)			—			—			—						11,112
Total financial assets held at fair value			$	5,016		$	3,673,427		$	—					$	3,689,555
Financial liabilities held at fair value:
Gross derivative instruments, before netting (1)			$	218		$	12,136		$	—					$	12,354

(1)For information relating to the impact of netting derivative assets and derivative liabilities, as well as the impact from offsetting cash collateral paid to the same derivative counterparties, refer to Note 14: Derivative Financial Instruments.

(2)Alternative investments are recorded at NAV. Assets measured at NAV are not classified within the fair value hierarchy.

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Assets Measured at Fair Value on a Non-Recurring Basis

Certain assets are measured at fair value on a non-recurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment. At June 30, 2021, no significant assets classified within Level 3 were identified and measured under this basis. The following is a description of valuation methodologies used for assets measured on a non-recurring basis.

Alternative Investments. The measurement alternative has been elected for alternative investments without readily determinable fair values that do not qualify for the NAV practical expedient. The measurement alternative requires investments to be accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. These alternative investments are investments in non-public entities that generally cannot be redeemed since the investment is distributed as the underlying equity is liquidated. Accordingly, these alternative investments are classified within Level 2 of the fair value hierarchy. The carrying amount of these alternative investments was $19.9 million at June 30, 2021, which is inclusive of $0.4 million and $0.2 million measured at fair value where there was a $0.1 million write-up due to an observable price change and a $0.3 million write-down due to impairment, respectively. No other adjustments were identified during the six months ended June 30, 2021.

Collateral Dependent Loans and Leases. Loans and leases for which the payment is expected to be provided solely by the value of the underlying collateral are considered collateral dependent and are valued based on the estimated fair value of such collateral, less estimated cost to sell, using customized discounting criteria. Accordingly, such collateral dependent loans and leases are classified within Level 3 of the fair value hierarchy.

Other Real Estate Owned (OREO) and Repossessed Assets. The total book value of OREO and repossessed assets was $2.8 million at June 30, 2021. OREO and repossessed assets are accounted for at the lower of cost or fair value and are considered to be recognized at fair value when recorded below cost. The fair value of OREO is based on independent appraisals or internal valuation methods, less estimated selling costs. The valuation may consider available pricing guides, auction results, and price opinions. Certain assets require assumptions about factors that are not observable in an active market in the determination of fair value; as such, OREO and repossessed assets are classified within Level 3 of the fair value hierarchy.

In addition, the amortized cost of consumer loans secured by residential real estate property that are in process of foreclosure amounted to $9.9 million at June 30, 2021.

Fair Value of Financial Instruments and Servicing Assets

The Company is required to disclose the estimated fair value of financial instruments for which it is practicable to estimate fair value, as well as for servicing assets. The following is a description of the valuation methodologies used for those assets and liabilities.

Cash, Due from Banks, and Interest-bearing Deposits. The carrying amount of cash, due from banks, and interest-bearing deposits is used to approximate fair value given the short time frame to maturity, and as such, these assets do not present unanticipated credit concerns. Cash, due from banks, and interest-bearing deposits are classified within Level 1 of the fair value hierarchy.

Held-to-Maturity Investment Securities. When quoted market prices are not available, the Company employs an independent pricing service that utilizes matrix pricing to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and respective terms and conditions for debt instruments. Management maintains procedures to monitor the pricing service's results and has an established process to challenge their valuations or methodologies that appear unusual or unexpected. Held-to-Maturity investment securities, which include Agency CMO, Agency MBS, Agency CMBS, CMBS, and municipal bonds and notes, are classified within Level 2 of the fair value hierarchy.

Loans and Leases, net. The estimated fair value of loans and leases held for investment is calculated using a discounted cash flow method based on future prepayments and market interest rates inclusive of an illiquidity premium for comparable loans and leases. The associated cash flows are adjusted for credit and other potential losses. Fair value for collateral dependent loans and leases is estimated using the net present value of the expected cash flows. Loans and leases are classified within Level 3 of the fair value hierarchy.

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Deposit Liabilities. The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. Deposit liabilities are classified within Level 2 of the fair value hierarchy.

Time Deposits. The fair value of a fixed-maturity certificate of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Time deposits are classified within Level 2 of the fair value hierarchy.

Securities Sold Under Agreements to Repurchase and Other Borrowings. The fair value of securities sold under agreements to repurchase and other borrowings that mature within 90 days is equal to the carrying value. Fair value for all other balances are estimated using a discounted cash flow analysis based on current market rates adjusted for associated credit risks, as appropriate. Securities sold under agreements to repurchase and other borrowings are classified within Level 2 of the fair value hierarchy.

Federal Home Loan Bank Advances and Long-Term Debt. The fair value of FHLB advances and long-term debt is estimated using a discounted cash flow technique. Discount rates are matched with the time period of the expected cash flows and are adjusted, as appropriate, to reflect credit risk. FHLB advances and long-term debt are classified within Level 2 of the fair value hierarchy.

Mortgage Servicing Assets. Mortgage servicing assets are initially recorded at fair value and subsequently measured under the amortization method. Fair value is calculated as the present value of estimated future net servicing income and relies on market based assumptions for loan prepayment speeds, servicing costs, discount rates, and other economic factors. As such, the primary risk inherent in valuing mortgage servicing assets is the impact of fluctuating interest rates on the related servicing revenue stream. Mortgage servicing assets are reviewed quarterly and held at the lower of the carrying amount or fair value. Fair value adjustments, if any, are included as a component of loan related fees in the accompanying Condensed Consolidated Statements of Income. Mortgage servicing assets are classified within Level 3 of the fair value hierarchy.

The carrying amounts, estimated fair values, and classifications within the fair value hierarchy of selected financial instruments and servicing assets are summarized as follows:

			At June 30, 2021												At December 31, 2020
(In thousands)			Carrying Amount						Fair Value						Carrying Amount						Fair Value
Assets:
Level 2
Held-to-maturity investment securities, net			$	5,623,243					$	5,794,155					$	5,567,889					$	5,835,364
Level 3
Loans and leases, net			21,167,056						21,242,694						21,281,784						21,413,397
Mortgage servicing assets			11,501						16,578						13,422						14,362
Liabilities:
Level 2
Deposit liabilities			$	26,832,422					$	26,832,422					$	24,847,618					$	24,847,618
Time deposits			2,014,544						2,016,468						2,487,818						2,494,601
Securities sold under agreements to repurchase and other borrowings			507,124						513,384						995,355						1,000,189
FHLB advances			138,444						142,736						133,164						139,035
Long-term debt (1)			565,297						523,139						567,663						538,407

(1)Adjustments to the carrying amount of long-term debt for basis adjustment and unamortized discount and debt issuance cost on senior fixed-rate notes are not included in the determination of fair value. Refer to Note 10: Borrowings for additional information.

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Note 16: Retirement Benefit Plans

Defined Benefit Pension and Other Postretirement Benefits

The following table summarizes the components of net periodic benefit (income) cost:

			Three months ended June 30,
			2021												2020
(In thousands)			Pension Plan			SERP			Other						Pension Plan			SERP			Other Benefits
Interest cost on benefit obligations			$	1,166		$	6		$	4					$	1,675		$	12		$	12
Expected return on plan assets			(3,596)			—			—						(3,380)			—			—
Recognized net loss (gain)			1,020			9			(20)						993			6			(8)
Net periodic benefit (income) cost			$	(1,410)		$	15		$	(16)					$	(712)		$	18		$	4

			Six months ended June 30,
			2021												2020
(In thousands)			Pension Plan			SERP			Other Benefits						Pension Plan			SERP			Other Benefits
Interest cost on benefit obligations			$	2,332		$	13		$	8					$	3,350		$	23		$	25
Expected return on plan assets			(7,191)			—			—						(6,760)			—			—
Recognized net loss (gain)			2,039			17			(40)						1,985			12			(17)
Net periodic benefit (income) cost			$	(2,820)		$	30		$	(32)					$	(1,425)		$	35		$	8

The components of net periodic benefit (income) cost are included within other non-interest expense on the accompanying Condensed Consolidated Statements of Income. The weighted-average expected long-term rate of return on plan assets for the three and six months ended June 30, 2021 was 5.50%, as determined at the beginning of the fiscal year.

Note 17: Segment Reporting

Webster's operations are organized into three reportable segments that represent its primary businesses: Commercial Banking, HSA Bank, and Retail 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. 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.

Effective January 1, 2021, management realigned certain of the Company's business banking and investment services operations to better serve its customers and deliver operational efficiencies. The previously reported Community Banking segment was also renamed as Retail Banking. Under this realignment, $131.0 million of goodwill was reallocated, on a relative fair value basis, from Retail Banking to Commercial Banking. There was no goodwill impairment as a result of the reorganization. Prior period amounts have been recasted to reflect the realignment.

Description of Segment Reporting Methodology

Webster uses an internal profitability reporting system to generate information by reportable segment, which is based on a series of management estimates for funds transfer pricing, and allocations for non-interest expense, provision for credit losses, income taxes, and equity capital. These estimates and allocations, certain of which are subjective in nature, are periodically reviewed and refined. Changes in estimates and allocations that affect the results of any reportable segment do not affect the consolidated financial position or results of operations of Webster as a whole. The full profitability measurement reports, which are prepared for each reportable segment, reflect non-GAAP reporting methodologies. The differences between full profitability and GAAP results are reconciled in the Corporate and Reconciling category.

Webster allocates interest income and interest expense to each business, through an internal matched maturity Funds Transfer Pricing (FTP) process. The goal of the FTP allocation is to encourage loan and deposit growth consistent with the Company’s overall profitability objectives. The FTP process considers the specific interest rate risk and liquidity risk of financial instruments and other assets and liabilities in each line of business. Loans are assigned an FTP rate for funds used and deposits are assigned an FTP rate for funds provided. The allocation considers the origination date and the earlier of the maturity date or the repricing date of a financial instrument to assign an FTP rate for loans and deposits originated each day. The FTP process transfers the corporate interest rate risk exposure to the treasury function included within the Corporate and Reconciling category where such exposures are centrally managed.

Webster allocates a majority of non-interest expense to each reportable segment using a full-absorption costing process. Costs, including corporate overhead, are analyzed, pooled by process, and assigned to the appropriate reportable segment. Business development costs are generally included in the Corporate and Reconciling category.

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

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Webster also allocates the provision for credit losses to each reportable segment based on management's estimate of the inherent loss content in each of the specific loan and lease portfolios. Allowance for credit losses on loans and leases is included in total assets within the Corporate and Reconciling category.

The following table presents balance sheet information, including all appropriate allocations, for Webster's reportable segments and the Corporate and Reconciling category:

			At June 30, 2021
(In thousands)			Commercial Banking			HSA Bank			Retail Banking									Corporate and Reconciling			Consolidated Total
Goodwill			$	131,000		$	21,813		$	385,560								$	—		$	538,373
Total assets			$	14,837,710		$	78,054		$	7,432,340								$	11,405,648		$	33,753,752
			At December 31, 2020
(In thousands)			Commercial Banking			HSA Bank			Retail Banking									Corporate and Reconciling			Consolidated Total
Goodwill			$	131,000		$	21,813		$	385,560								$	—		$	538,373
Total assets			$	14,732,792		$	80,352		$	7,726,287								$	10,051,259		$	32,590,690

The following tables present the operating results, including all appropriate allocations, for Webster’s reportable segments and the Corporate and Reconciling category:

			Three months ended June 30, 2021
(In thousands)			Commercial Banking			HSA Bank			Retail Banking						Corporate and Reconciling			Consolidated Total
Net interest income			$	141,124		$	42,193		$	92,540					$	(55,005)		$	220,852
Non-interest income			25,713			26,554			16,763						3,672			72,702
Non-interest expense			61,445			32,792			72,346						20,445			187,028
Pre-tax, pre-provision net revenue			105,392			35,955			36,957						(71,778)			106,526
Provision for credit losses			(23,328)			—			1,754						74			(21,500)
Income before income tax expense			128,720			35,955			35,203						(71,852)			128,026
Income tax expense			32,566			9,600			7,745						(15,920)			33,991
Net income			$	96,154		$	26,355		$	27,458					$	(55,932)		$	94,035

			Three months ended June 30, 2020
(In thousands)			Commercial Banking			HSA Bank			Retail Banking						Corporate and Reconciling			Consolidated Total
Net interest income			$	128,123		$	39,334		$	81,609					$	(24,659)		$	224,407
Non-interest income			21,849			23,103			16,281						(1,157)			60,076
Non-interest expense			61,261			34,020			77,119						4,184			176,584
Pre-tax, pre-provision net revenue			88,711			28,417			20,771						(30,000)			107,899
Provision for credit losses			43,569			—			(3,566)						(3)			40,000
Income before income tax expense			45,142			28,417			24,337						(29,997)			67,899
Income tax expense			11,015			7,587			5,305						(9,105)			14,802
Net income			$	34,127		$	20,830		$	19,032					$	(20,892)		$	53,097

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			Six months ended June 30, 2021
(In thousands)			Commercial Banking			HSA Bank			Retail Banking						Corporate and Reconciling			Consolidated Total
Net interest income			$	283,162		$	84,302		$	181,353					$	(104,201)		$	444,616
Non-interest income			50,890			53,559			32,834						12,176			149,459
Non-interest expense			126,281			69,042			148,470						31,217			$	375,010
Pre-tax, pre-provision net revenue			207,771			$	68,819		65,717						(123,242)			219,065
Provision for credit losses			(42,701)			—			(4,632)						83			(47,250)
Income before income tax expense			250,472			68,819			70,349						(123,325)			266,315
Income tax expense			63,369			18,375			15,477						(33,019)			64,202
Net income			$	187,103		$	50,444		$	54,872					$	(90,306)		$	202,113

			Six months ended June 30, 2020
(In thousands)			Commercial Banking			HSA Bank			Retail Banking						Corporate and Reconciling			Consolidated Total
Net interest income			$	245,710		$	82,007		$	162,808					$	(35,317)		$	455,208
Non-interest income			44,265			49,486			34,724						4,979			133,454
Non-interest expense			126,482			71,098			157,409						431			355,420
Pre-tax, pre-provision net revenue			163,493			60,395			40,123						(30,769)			233,242
Provision for credit losses			112,587			—			3,501						(88)			116,000
Income before income tax expense			50,906			60,395			36,622						(30,681)			117,242
Income tax expense			12,421			16,125			7,983						(10,583)			25,946
Net income			$	38,485		$	44,270		$	28,639					$	(20,098)		$	91,296

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Note 18: Revenue from Contracts with Customers

The following table presents revenues within the scope of ASC Topic 606, Revenue from Contracts with Customers, along with the net amount of other sources of non-interest income that are within the scope of other GAAP topics, by reportable segment:

			Three months ended June 30, 2021
(In thousands)			Commercial Banking			HSA Bank			Retail Banking			Corporate and Reconciling			Consolidated Total
Non-interest Income:
Deposit service fees			$	4,104		$	24,478		$	12,734		$	123		$	41,439
Wealth and investment services			10,096			—			—			(9)			10,087
Other			276			2,076			303			—			2,655
Revenue from contracts with customers			14,476			26,554			13,037			114			54,181
Other sources of non-interest income			11,237			—			3,726			3,558			18,521
Total non-interest income			$	25,713		$	26,554		$	16,763		$	3,672		$	72,702

			Three months ended June 30, 2020
(In thousands)			Commercial Banking			HSA Bank			Retail Banking			Corporate and Reconciling			Consolidated Total
Non-interest Income:
Deposit service fees			$	3,443		$	21,741		$	10,748		$	(93)		$	35,839
Wealth and investment services			7,140			—			—			(38)			7,102
Other			363			1,362			377			—			2,102
Revenue from contracts with customers			10,946			23,103			11,125			(131)			45,043
Other sources of non-interest income			10,903			—			5,156			(1,026)			15,033
Total non-interest income			$	21,849		$	23,103		$	16,281		$	(1,157)		$	60,076

			Six months ended June 30, 2021
(In thousands)			Commercial Banking			HSA Bank			Retail Banking			Corporate and Reconciling			Consolidated Total
Non-interest Income:
Deposit service fees			$	8,205		$	49,496		$	24,037		$	170		$	81,908
Wealth and investment services			19,508			—			—			(18)			19,490
Other			578			4,063			549			—			5,190
Revenue from contracts with customers			28,291			53,559			24,586			152			106,588
Other sources of non-interest income			22,599			—			8,248			12,024			42,871
Total non-interest income			$	50,890		$	53,559		$	32,834		$	12,176		$	149,459

			Six months ended June 30, 2020
(In thousands)			Commercial Banking			HSA Bank			Retail Banking			Corporate and Reconciling			Consolidated Total
Non-interest Income:
Deposit service fees			$	7,354		$	46,583		$	24,488		$	(16)		$	78,409
Wealth and investment services			15,886			—			—			(45)			15,841
Other			619			2,903			438			—			3,960
Revenue from contracts with customers			23,859			49,486			24,926			(61)			98,210
Other sources of non-interest income			20,406			—			9,798			5,040			35,244
Total non-interest income			$	44,265		$	49,486		$	34,724		$	4,979		$	133,454

The major sources of revenue from contracts with customers are described below:

Deposit service fees predominately consist of fees earned from deposit accounts and interchange fees. Fees earned from deposit accounts relate to event-driven services and periodic account maintenance activities. Webster's obligations for event-driven services are satisfied at the time the service is delivered, while the obligations for maintenance services are satisfied monthly. Interchange fees are assessed as the performance obligation is satisfied, which is the point in time that the card transaction is authorized.

Wealth and investment services consists of fees earned from investment and securities-related services, trust, and other related services. Obligations for wealth and investment services are generally satisfied over time through a time-based measurement of progress, but certain obligations may be satisfied at points in time for activities that are transactional in nature.

These disaggregated amounts are reconciled to non-interest income as presented within Note 17: Segment Reporting. Contracts with customers did not generate significant contract assets and liabilities.

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Note 19: Commitments and Contingencies

Credit-Related Financial Instruments

The Company offers credit-related financial instruments in the normal course of business to meet certain financing needs of its customers, that involve off-balance sheet risk. These transactions may include an unused commitment to extend credit, standby letter of credit, or a commercial letter of credit. Such transactions involve, to varying degrees, elements of credit risk.

Commitments to Extend Credit. The Company makes commitments under various terms to lend funds to customers at a future point in time. These commitments include revolving credit arrangements, term loan commitments, and short-term borrowing agreements. Most of these loans have fixed expiration dates or other termination clauses where a fee may be required. Since commitments routinely expire without being funded, or after required availability of collateral occurs, the total commitment amount does not necessarily represent future liquidity requirements.

Standby Letters of Credit. A standby letter of credit commits the Company to make payments on behalf of customers if certain specified future events occur. The Company has recourse against the customer for any amount required to be paid to a third party under a standby letter of credit, which is often part of a larger credit agreement under which security is provided. Historically, a large percentage of standby letters of credit expire without being funded. The contractual amount of a standby letter of credit represents the maximum amount of potential future payments the Company could be required to make, and is the Company's maximum credit risk.

Commercial Letters of Credit. A commercial letter of credit is issued to facilitate either domestic or foreign trade arrangements for customers. As a general rule, drafts are committed to be drawn when the goods underlying the transaction are in transit. Similar to a standby letter of credit, a commercial letter of credit is often secured by an underlying security agreement including the assets or inventory to which they relate.

The following table summarizes the outstanding amounts of credit-related financial instruments with off-balance sheet risk:

(In thousands)			At June 30, 2021						At December 31, 2020
Commitments to extend credit			$	7,143,906					$	6,517,840
Standby letters of credit			213,751						207,201
Commercial letters of credit			50,120						30,522
Total credit-related financial instruments with off-balance sheet risk			$	7,407,777					$	6,755,563

These commitments subject the Company to potential exposure in excess of amounts recorded in the financial statements, and therefore, management maintains an allowance for credit losses on unfunded loan commitments to provide for expected losses in connection with funding the unused portion of legal commitments to lend when those commitments are not unconditionally cancellable by Webster. Loss calculation factors are consistent with the ACL methodology for funded loans using PD and LGD applied to the underlying borrower risk and facility grades, a draw down factor applied to utilization rates, and relevant forecast information. This allowance is reported as a component of accrued expenses and other liabilities on the accompanying Condensed Consolidated Balance Sheets.

The following table provides a summary of activity in the allowance for credit losses on unfunded loan commitments:

			Three months ended June 30,												Six months ended June 30,
(In thousands)			2021						2020						2021						2020
Beginning balance			$	12,800					$	10,084					$	12,755					$	2,367
Adoption of ASU No. 2016-13 (CECL)			—						—						—						9,139
(Benefit) provision			(826)						655						(781)						(767)
Ending balance			$	11,974					$	10,739					$	11,974					$	10,739

Note 20: Subsequent Events

The Company has evaluated subsequent events from the date of the Condensed Consolidated Financial Statements and accompanying Notes thereto, June 30, 2021, through the date of issuance, and determined that no significant events were identified requiring recognition or disclosure.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The required information is set forth above in Item 1. Financial Statements, refer to Note 14: Derivative Financial Instruments, and in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, refer to the section captioned "Asset/Liability Management and Market Risk", which are incorporated herein for reference.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company has performed an evaluation, under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures for recording, processing, summarizing, and reporting the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC's rules and forms, were effective as of June 30, 2021.

Changes in Internal Control over Financial Reporting

There were no changes made to the Company's internal control over financial reporting during the quarter ended June 30, 2021, that materially affected, or would be reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, Webster Financial Corporation, or its subsidiaries, are subject to certain legal proceedings and claims in the ordinary course of business. The Company intends to defend itself in all claims asserted against it, and management currently believes that the ultimate outcome of these proceedings will not be material, either individually or in the aggregate, to Webster or its consolidated financial position. Webster establishes an accrual for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. Legal proceedings are subject to inherent uncertainties, and unfavorable rulings may occur that could cause Webster to adjust its litigation accrual or could have a material adverse effect, either individually or in the aggregate, on its business, financial condition, or operating results.

ITEM 1A. RISK FACTORS

As a result of Webster entering into a merger agreement with Sterling, certain risk factors have been identified:

Webster may not be able to complete the merger with Sterling, as the completion is contingent upon the satisfaction of a number of conditions, some of which are beyond both Webster's and Sterling's control.

Adoption of the merger agreement is subject to customary closing conditions, including the receipt of regulatory approvals and the requisite approvals of both Webster's shareholders and Sterling's shareholders. Conditions to the closing of the merger may not be fulfilled in a timely manner or at all, and accordingly, the merger may not be completed. In addition, the parties can mutually decide to terminate the merger agreement at any time, or Webster or Sterling may unilaterally elect to terminate the merger agreement. If the merger agreement is terminated under certain circumstances, Webster may be required to pay a $185.0 million termination fee to Sterling.

Webster and Sterling may also be subject to lawsuits challenging the merger, and adverse rulings in these lawsuits may delay or prevent the merger from being completed or require Webster or Sterling to incur significant costs to defend or settle these lawsuits. Any delay in completing the merger could cause Webster not to realize, or be delayed in realizing, some or all of the benefits that the Company expects to achieve if the merger is successfully completed within the anticipated time frame.

While the merger is pending, Webster will be subject to business uncertainties and contractual restrictions that could adversely affect its business and operations.

Uncertainty about the effect of the merger on employees, customers, and other persons with whom Webster or Sterling have a business relationship may have an adverse effect on Webster's business, operations and stock price. Existing customers of Webster and Sterling could decide to no longer do business with Webster, Sterling, or the combined company, reducing the anticipated benefits of the merger. Webster and Sterling are also subject to certain restrictions on the conduct of their respective businesses while the merger is pending. As a result, certain other projects may be delayed or abandoned and business decisions could be deferred. Employee retention at Sterling and Webster may be challenging before completion of the merger, as certain employees may experience uncertainty about their future roles with the combined company. These retention challenges could require Webster to incur additional expenses in order to retain key employees. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Webster, Sterling or the combined company, the benefits of the merger could be materially diminished.

Webster may fail to realize the anticipated benefits of the merger, or those benefits may take longer to realize than expected. Further, following the completion of the merger, Webster may also encounter significant difficulties in integrating with Sterling, and consequently, its results could suffer.

Webster and Sterling have operated and, until the completion of the merger, will continue to operate, independently. The success of the merger, including anticipated benefits and cost savings, will depend, in part, on Webster’s ability to successfully integrate Sterling’s operations in a manner that results in various benefits and that does not materially disrupt existing customer relationships or result in decreased revenues due to loss of customers. The process of integrating operations could result in a loss of key personnel or cause an interruption of, or loss of momentum in, the activities of one or more of the combined company's businesses. Inconsistencies in standards, internal controls, procedures, and policies could adversely affect the combined company. The diversion of management's attention and any delays or difficulties encountered in connection with the merger and the integration of Sterling’s operations could have an adverse effect on the business, financial condition, and operating results of the combined company. If Webster experiences difficulties in the integration process, including those listed above, Webster may fail to realize the anticipated benefits of the merger in a timely manner or at all.

Upon the merger's completion, the size of Webster’s business will increase significantly. Webster’s future success depends, in part, upon the ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There

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is no guarantee that Webster will be successful or that Webster will realize the expected operating efficiencies, cost savings, and other benefits currently anticipated from the merger’s completion.

Webster is expected to incur substantial expenses related to the merger and integration with Sterling.

Both Webster and Sterling will incur substantial transaction costs and other expenses in connection with the merger, as there are various processes, policies, procedures, operations, technologies, and systems that must be integrated. Many of the expenses that will be incurred are inherently difficult to estimate accurately and could exceed the anticipated savings that Webster expects to achieve. While Webster has planned for an estimated level of expenses to be incurred, there are many factors beyond the Company’s control that could affect the total amount or the timing of charges to earnings.

The other risk factors that could affect the Company's financial condition or operating results remain unchanged from those previously disclosed in Webster's Annual Report on Form 10-K for the year ended December 31, 2020.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table provides information with respect to any purchase of equity securities of Webster Financial Corporation's common stock made by or on behalf of Webster or any "affiliated purchaser," as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, during the three months ended June 30, 2021:

Period			Total Number of Shares Purchased (1)			Average Price Paid Per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs			Maximum Dollar Amount Available for Repurchase Under the Plans or Programs (2)
April			1,580			$	55.24		—			$	123,443,785
May			—			—			—			123,443,785
June			275			56.92			—			123,443,785
Total			1,855			55.49			—			123,443,785

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

(2)Webster maintains a common stock repurchase program which authorizes management to purchase shares of its common stock in either open market or privately negotiated transactions, subject to market conditions and other factors. On October 29, 2019, the Company announced that its Board of Directors approved a modification to this program, originally approved on October 24, 2017, increasing the maximum dollar amount available for repurchase to $200 million. This program will remain in effect until fully utilized or until modified, superseded, or terminated. However, due to the Company's announcement of its pending merger agreement with Sterling on April 19, 2021, Webster may not purchase any shares under this program until the transaction is closed.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

Not applicable

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ITEM 6. EXHIBITS

A list of exhibits to this Form 10-Q is set forth below.

Exhibit Number

Exhibit Description

Exhibit Included

Incorporated by Reference

Form

Exhibit

Filing Date

2

Agreement and Plan of Merger, dated as of April 18, 2021, by and between Sterling Bancorp and Webster Financial Corporation

8-K

2.1

4/23/2021

3

Certificate of Incorporation and Bylaws.

3.1

Fourth Amended and Restated Certificate of Incorporation

10-Q

3.1

8/9/2016

3.2

Certificate of Designations establishing the rights of the Company's 8.50% Series A Non-Cumulative Perpetual Convertible Preferred Stock

8-K

3.1

6/11/2008

3.3

Certificate of Designations establishing the rights of the Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series B

8-K

3.1

11/24/2008

3.4

Certificate of Designations establishing the rights of the Company's Perpetual Participating Preferred Stock, Series C

8-K

3.1

7/31/2009

3.5

Certificate of Designations establishing the rights of the Company's Non-Voting Perpetual Participating Preferred Stock, Series D

8-K

3.2

7/31/2009

3.6

Certificate of Designations establishing the rights of the Company's 6.40% Series E Non-Cumulative Perpetual Preferred Stock

8-A12B

3.3

12/4/2012

3.7

Certificate of Designations establishing the rights of the Company's 5.25% Series F Non-Cumulative Perpetual Preferred Stock

8-A12B

3.3

12/12/2017

3.8

Bylaws, as amended effective March 15, 2020

8-K

3.1

3/17/2020

10 (1)

Webster Financial Corporation 2021 Stock Incentive Plan, which amends the name of and also amends and restates the 1992 Stock Option Plan, effective April 22, 2021

DEF 14A

A

3/19/2021

31.1

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by the Chief Executive Officer.

X

31.2

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by the Chief Financial Officer.

X

32.1

Written statement pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by the Chief Executive Officer.

X (2)

32.2

Written statement pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by the Chief Financial Officer.

X (2)

101

The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 formatted in Inline Extensible Business Reporting Language (iXBRL) includes: (i) Cover Page, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements Of Income, (iv) Condensed Consolidated Statements Of Comprehensive Income, (v) Condensed Consolidated Statements Of Shareholders' Equity, (vi) Condensed Consolidated Statements Of Cash Flows, and (vii) Notes to Condensed Consolidated Financial Statements, tagged in summary and in detail.

X

104

Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101)

X

(1) Denotes management contract or compensatory plan or arrangement in which directors or executive officers are eligible to participate.

(2) Exhibit is furnished herewith and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

WEBSTER FINANCIAL CORPORATION

Registrant

Date: August 4, 2021

By:

/s/ John R. Ciulla

John R. Ciulla

Chairman, President and Chief Executive Officer

(Principal Executive Officer)

Date: August 4, 2021

By:

/s/ Glenn I. MacInnes

Glenn I. MacInnes

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Date: August 4, 2021

By:

/s/ Albert J. Wang

Albert J. Wang

Executive Vice President and Chief Accounting Officer

(Principal Accounting Officer)

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