WEBSTER FINANCIAL CORP (WBS) FY 2022 MD&A

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

The following discussion and analysis provides information that management believes is necessary to understand the Company's financial condition, results of operations, and cash flows for the year ended December 31, 2022, as compared to 2021. This information should be read in conjunction with the Company's Consolidated Financial Statements, and the accompanying Notes thereto, contained in Part II - Item 8. Financial Statements and Supplementary Data, as well as other information set forth throughout this report. For discussion and analysis of the Company's 2021 results, as compared to 2020, refer to Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on

February 25, 2022. The Company's financial condition and operating results for the year ended December 31, 2022, are not necessarily indicative of the financial condition or operating results that may be attained in future periods.

Executive Overview

Mergers and Acquisitions

On January 31, 2022, Webster completed its merger with Sterling in an all-stock transaction valued at $5.2 billion. The merger expanded the Company's geographic footprint and combined two complementary organizations to create one of the largest commercial banks in the northeastern U.S. At December 31, 2022, the Company had $71.3 billion in total assets, $49.8 billion in loans and leases, and $54.0 billion in total deposits, and operated 201 banking centers throughout southern New England and metro and suburban New York. In addition, on February 18, 2022, Webster acquired 100% of the equity interests of Bend, a cloud-based platform solution provider for HSAs, in exchange for cash. The Bend acquisition accelerated the Company’s efforts underway to deliver enhanced user experiences at HSA Bank. Financial results for historical reporting periods reflect only the results of the Company's operations prior to the corresponding merger or acquisition.

The successful integration of Webster’s and Sterling’s operations depends on the Company’s ability to successfully consolidate business operations, management teams, corporate cultures, operating systems, and controls procedures, and eliminate costs and redundancies. At December 31, 2022, noteworthy accomplishments include: (i) the rebranding of branches and digital assets, (ii) the coordination of credit policies and procedures, (iii) the selection of key operating systems, (iv) the consolidation of cloud data centers, commercial credit risk management systems and commercial client pricing tools, as well as mortgage servicing, payroll, and treasury platforms, (v) the completed transfer of consumer wealth and investment services operations to a third-party provider, (vi) the finalization of governance and executive management structures, (vii) the establishment of a corporate responsibility office to oversee community engagement, philanthropy, and sustainability, and (viii) Company-wide participation at culture-shaping workshops. Other key operating systems and process integration activities are ongoing, and the Company remains well-positioned to successfully execute its core conversion targeted for mid-2023.

In addition, the Company developed and launched a corporate real estate consolidation strategy during the second quarter of 2022 in which the Company arranged to close 14 locations, primarily throughout New York and Connecticut, in order to reduce its corporate facility square footage by approximately 45% by the end of the year. The Company successfully completed its corporate real estate consolidation strategy in 2022, as planned. During the year ended December 31, 2022, the Company recognized $23.1 million in ROU asset impairment charges and a combined $12.3 million in related exit costs and accelerated depreciation on property and equipment related to this corporate real estate consolidation strategy.

On December 5, 2022, Webster announced its plans to acquire interLINK, a technology-enabled deposit management platform that administers over $9 billion of deposits from FDIC-insured cash sweep programs between banks and broker/dealers and clearing firms. The purpose of the acquisition is to provide the Company with access to a unique source of core deposit funding and scalable liquidity and adds another technology-enabled channel to the Company’s already differentiated, omnichannel deposit gathering capabilities. The Company's acquisition of interLINK closed on January 11, 2023.

Additional information regarding the Company's mergers and acquisitions can be found within Note 2: Mergers and Acquisitions in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.

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LIBOR Transition

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

Accordingly, the Company has set up a governance structure to ensure risks and issues are appropriately discussed and resolved. This involves a senior management level Working Group that meets monthly, an executive management level Steering Committee that meets quarterly, and regular updates to the Risk Committee of the Board of Directors. The Working Group, along with a transition and project manager, direct the execution of the transition activities on a day-to-day basis. The Company has also engaged an external consultant through June 30, 2023, to assist with legacy LIBOR contract remediation, as well as provide subject matter advisory and market guidance. In addition, the Company has established bi-weekly sessions to address colleague questions and provide additional SOFR-related information and insights.

The Company adopted the Term SOFR rate and related conventions associated with the product line as the LIBOR replacement index and implemented the ARRC recommended fallback language for impacted contracts, as well as the recommended spread adjustments for legacy loans and/or derivative products. The Company began offering SOFR-based loans and derivatives to its customers in October 2021, and both Webster and Sterling had achieved SOFR readiness by the December 31, 2021, regulatory deadline, prior to the merger. As of January 1, 2022, the Company no longer originated new contracts using any LIBOR index, as defined by regulatory guidance.

Throughout the year ended December 31, 2022, management completed several of its key transition plan milestones, including but not limited to: an assessment of system readiness through user acceptance testing, the distribution of training materials to relationship managers on fallback rates and conventions, the development of operational procedures for the actual transitioning of LIBOR contracts to SOFR post-June 2023, and the deployment of contract remediation. A Contract Remediation SharePoint site has been established for Commercial Bank colleagues to assist with the tracking of contract remediation for LIBOR-based loans maturing post June 30, 2023. In order to identify the population of LIBOR exposures subject to contract remediation, parallel reporting was established. Management continues to pursue system upgrades to expand SOFR conventions (e.g., SOFR in-arrears) available to clients by collaborating with third-party vendors.

As of the date of this Annual Report on Form 10-K, the Company's main focus is on the remediation of legacy LIBOR contracts, the integration of legacy Webster and Sterling systems and processes, monitoring and responding to market developments, and addressing regulatory and accounting requirements. The Company will execute its actual transition of remaining legacy LIBOR contracts to SOFR at the first rate reset date after June 30, 2023.

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Results of Operations

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

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

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Non-GAAP Financial Measures

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

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

These non-GAAP financial measures should not be considered a substitute for GAAP basis financial measures. Because

non-GAAP financial measures are not standardized, it may not be possible to compare these with other companies that present financial measures having the same or similar names.

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

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(1)Other expense (non-GAAP) includes debt prepayments costs in 2021.

(2)Other income (non-GAAP) includes the taxable equivalent of net income generated from LIHTC investments for all periods presented and a $5.5 million discrete customer derivative fair value adjustment in 2020.

Net Interest Income

Net interest income is the Company's primary source of revenue, representing 82.2%, and 73.6% of total revenues for the years ended December 31, 2022, and 2021, respectively. Net interest income is the difference between interest income on

interest-earning assets (i.e., loans and leases and investment securities) and interest expense on interest-bearing liabilities

(i.e., deposits and borrowings), which are used to fund interest-earning assets and other activities. Net interest margin is calculated as the ratio of FTE net interest income to average interest-earning assets.

Net interest income, net interest margin, yields, and ratios on a FTE basis are considered non-GAAP financial measures, and are used by management to evaluate the comparability of the Company's revenue arising from both taxable and non-taxable sources. FTE adjustments are determined assuming a statutory federal income tax rate of 21%.

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

Net interest income increased $1.1 billion, or 125.8%, from $0.9 billion for the year ended December 31, 2021, to $2.0 billion for the year ended December 31, 2022. On a FTE basis, net interest income increased $1.2 billion from December 31, 2021, to December 31, 2022. Net interest margin increased 65 basis points from 2.84% for the year ended December 31, 2021, to 3.49% for the year ended December 31, 2022. These increases, which include net purchase accounting accretion from loans and leases, investment securities, time deposits, and long-term debt acquired/assumed from Sterling, are primarily attributed to the merger, as well as the impact from the higher interest rate environment.

Average total interest-earning assets increased $26.9 billion, or 83.3%, from $32.3 billion for the year ended

December 31, 2021, to $59.2 billion for the year ended December 31, 2022, primarily due to increases of $22.2 billion and $5.3 billion in average loans and leases and average total investment securities, respectively, partially offset by a $0.8 billion decrease in average interest-bearing deposits held at the FRB. The average yield on interest-earning assets increased 94 basis points from 2.97% for the year ended December 31, 2021, to 3.91% for the year ended December 31, 2022. The increases in average total interest-earnings assets and the average yield on interest-earning assets were both impacted by the Sterling merger and the higher interest rate environment.

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Average loans and leases increased $22.2 billion, or 102.7%, from $21.6 billion for the year ended December 31, 2021, to $43.8 billion for the year ended December 31, 2022, primarily due to the merger with Sterling, as well as organic loan growth across the commercial non-mortgage, commercial real estate, and residential mortgage loan categories. These increases were partially offset by net paydowns, commercial portfolio loan sales, the forgiveness of PPP loans, net attrition in home equity balances, and the continued run-off of consumer Lending Club loans. At December 31, 2022, and 2021, average loans and leases comprised 73.9% and 66.9% of average total interest-earning assets, respectively. The average yield on loans and leases increased 95 basis points from 3.55% for the year ended December 31, 2021, to 4.50% for the year ended December 31, 2022, primarily due to a higher yield on the loans and leases acquired from Sterling, net purchase accounting accretion, and higher interest rates.

Average total investment securities increased $5.3 billion, or 57.4%, from $9.2 billion for the year ended December 31, 2021, to $14.5 billion for the year ended December 31, 2022, primarily due to the merger with Sterling, as well as the deployment of excess Company liquidity. At December 31, 2022, and 2021, average total investment securities comprised 24.6% and 28.6% of average total interest-earning assets, respectively. The average yield on investment securities increased 28 basis points from 2.03% for the year ended December 31, 2021, to 2.31% for the year ended December 31, 2022, primarily due to the reinvestment of maturing securities at higher yields.

Average interest-bearing deposits held at the FRB decreased $0.8 billion, or 56.7%, from $1.4 billion for the year ended December 31, 2021, to $0.6 billion for the year ended December 31, 2022, primarily due to excess customer liquidity in 2021 as a result of government stimulus and reduced spending. At December 31, 2022, and 2021, average interest-bearing deposits comprised 1.01% and 4.27% of average total interest-earning assets, respectively. The average yield on interest-bearing deposits increased 148 basis points from 0.14% for the year ended December 31, 2021, to 1.62% for the year ended December 31, 2022, primarily due to higher interest rates.

Average total interest-bearing liabilities increased $25.4 billion, or 83.6%, from $30.5 billion for the year ended

December 31, 2021, to $55.9 billion for the year ended December 31, 2022, primarily due to increases of $22.6 billion, $1.9 billion, $0.6 billion, and $0.5 billion in average total deposits, average FHLB advances, average federal funds purchased, and average long-term debt, respectively. The average rate on interest-bearing liabilities increased 31 basis points from 0.14% for the year ended December 31, 2021, to 0.45% for the year ended December 31, 2022, primarily due to the impact of the higher interest rate environment and the overall mix of funding sources.

Average total deposits increased $22.6 billion, or 77.3%, from $29.2 billion for the year ended December 31, 2021, to $51.8 billion for the year ended December 31, 2022, reflecting increases of $6.0 billion and $16.6 billion in

non-interest-bearing deposits and interest-bearing deposits, respectively. The overall increase in deposits was primarily due to the merger with Sterling, as well as the strong liquidity position of consumer and commercial customers, and HSA growth. At December 31, 2022, and 2021, average total deposits comprised 92.7% and 96.0% of average total interest-bearing liabilities, respectively. The average rate on deposits increased 20 basis points from 0.07% for the year ended December 31, 2021, to 0.27% for the year ended December 31, 2022, primarily due to the higher interest rate environment, which was partially offset by the run-off of time deposits. Average time deposits as a percentage of average total interest-bearing deposits decreased from 9.4% for the year ended December 31, 2021, to 7.3% for the year ended December 31, 2022, primarily due to customer preferences to hold more liquid deposit products.

Average FHLB advances increased $1.9 billion from $0.1 billion for the year ended December 31, 2021, to $2.0 billion for the year ended December 31, 2022, due to the Company's short-term funding needs. At December 31, 2022, and 2021, average FHLB advances comprised 3.5% and 0.4% of total average interest-bearing liabilities, respectively. The average rate on FHLB advances increased 140 basis points from 1.58% for the year ended December 31, 2021, to 2.98% for the year ended December 31, 2022, primarily due to higher interest rates on short-term borrowings.

Average federal funds purchased increased $582.3 million from $16.0 million for the year ended December 31, 2021, to $598.3 million for the year ended December 31, 2022, due to the Company's short-term funding needs. At December 31, 2022, and 2021, average federal funds purchased comprised 1.1% and 0.1% of total average interest-bearing liabilities, respectively. The average rate on federal funds purchased increased 250 basis points from 0.08% for the year ended December 31, 2021, to 2.58% for the year ended December 31, 2022, primarily due to higher overnight interest rates.

Average long-term debt increased $0.5 billion, or 82.5%, from $0.5 billion for the year ended December 31, 2021, to $1.0 billion for the year ended December 31, 2022, primarily due to the merger with Sterling. At December 31, 2022, and 2021, average long-term debt comprised 1.8% and 1.9% of total average interest-bearing liabilities, respectively. The average rate on long-term debt increased 22 basis points from 3.22% for the year ended December 31, 2021, to 3.44% for the year ended December 31, 2022, primarily due to the subordinated notes assumed from Sterling.

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

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

(2)For the purposes of our yield/rate and margin computations, unsettled trades on AFS securities and unrealized gain (loss) balances on AFS securities and de-designated senior fixed-rate notes hedges are excluded.

(3)Interest-bearing deposits are a component of cash and cash equivalents on the Consolidated Statements of Cash Flows included in Part II - Item 8. Financial Statements and Supplementary Data.

(4)In 2020, the Federal Reserve extended credit to the Company under the Paycheck Protection Program Liquidity Facility as the Bank was eligible to receive funds as a PPP loan participating lender. The Bank had settled its obligation as of the third quarter of 2020.

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

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

Provision for Credit Losses

The provision for credit losses increased $335.1 million, or 614.9%, from a benefit of $54.5 million for the year ended December 31, 2021, to an expense of $280.6 million for the year ended December 31, 2022. The increase is primarily attributed to the establishment of the initial ACL of $175.1 million for non-PCD loans and leases that were acquired from Sterling, as well as organic loan growth and commercial portfolio optimization initiatives. During the years ended December 31, 2022, and 2021, total net charge-offs were $67.3 million and $3.8 million, respectively. The $63.5 million increase in net charge-offs is primarily attributed to commercial portfolio optimization initiatives, along with favorable credit performance in 2021, as compared to 2022, as the economy benefited from the support of federal stimulus programs in the prior year.

Additional information regarding the Company's provision for credit losses and ACL can be found under the sections captioned "Loans and Leases" through "Allowance for Credit Losses on Loans and Leases" contained elsewhere in this

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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Non-Interest Income

Total non-interest income increased $117.4 million, or 36.3%, from $323.4 million for the year ended December 31, 2021, to $440.8 million for the year ended December 31, 2022, primarily due to increases in deposit service fees, loan and lease related fees, the cash surrender value of life insurance policies, and other income, the majority of which were primarily driven by the merger with Sterling, partially offset by a decrease in mortgage banking activities and a net loss on sale of investment securities.

Deposit service fees increased $35.8 million, or 22.0%, from $162.7 million for the year ended December 31, 2021, to

$198.5 million for the year ended December 31, 2022, primarily due to the merger with Sterling, particularly as it relates to cash management fees, overdraft fees, and service charges, and higher interchange revenue.

Loan and lease related fees increased $66.3 million, or 180.9%, from $36.7 million for the year ended December 31, 2021, to $103.0 million for the year ended December 31, 2022, primarily due to the merger with Sterling, and increases in servicing fee income, net of mortgage servicing amortization, prepayment penalties, and line usage and letter of credit fees.

Mortgage banking activities decreased $5.5 million, or 88.7%, from $6.2 million for the year ended December 31, 2021, to

$0.7 million for the year ended December 31, 2022, primarily due to lower originations for sale, as the Company continues to execute on its strategic decision to originate residential mortgage loans for investment rather than for sale.

The cash surrender value of life insurance policies increased $14.8 million, or 102.6%, from $14.4 million for the year ended December 31, 2021, to $29.2 million for the year ended December 31, 2022, primarily due to the additional bank-owned life insurance policies acquired in the merger with Sterling.

Net loss on sale of investment securities, totaled $6.8 million for the year ended December 31, 2022, as the Company sold

$179.7 million of Municipal bonds and notes classified as AFS for proceeds of $172.9 million. There were no sales of investment securities for the year ended December 31, 2021.

Other income increased $12.1 million, or 19.0%, from $63.8 million for the year ended December 31, 2021, to $75.9 million for the year ended December 31, 2022, primarily due to an increase in other income earned due to the impact of the merger with Sterling, higher income from client interest rate derivative activities, and a net $2.5 million gain on extinguishment of borrowings, partially offset by a decrease in direct investment income.

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Non-Interest Expense

Total non-interest expense increased $651.4 million, or 87.4%, from $745.1 million for the year ended December 31, 2021, to $1.4 billion for the year ended December 31, 2022, primarily due to increases in compensation and benefits, occupancy, technology and equipment, intangible assets amortization, professional and outside services, deposit insurance, and other expense, all of which were primarily driven by the merger with Sterling.

Compensation and benefits increased $303.6 million, or 72.3%, from $420.0 million for the year ended December 31, 2021, to $723.6 million for the year ended December 31, 2022, primarily due to salaries, bonuses, and incentives related to the increase in employees as a result of the merger with Sterling, and a $65.0 million increase in merger-related expenses, particularly as it relates to severance, retention, and restricted stock awards.

Occupancy increased $58.6 million, or 105.8%, from $55.3 million for the year ended December 31, 2021, to $113.9 million for the year ended December 31, 2022, primarily due to the Company's consolidation plan to reduce its corporate facility square footage, which resulted in $23.1 million ROU asset impairment charges and a combined $12.3 million in related exit costs and accelerated depreciation on property and equipment, and an increase in operating lease costs and depreciation related to the acquired Sterling banking centers and corporate offices.

Technology and equipment increased $73.6 million, or 65.2%, from $112.8 million for the year ended December 31, 2021, to $186.4 million for the year ended December 31, 2022, primarily due to a $24.4 million increase in merger-related expenses, particularly as it relates to contract termination costs, and an increase in technology and equipment due to the impact of the merger with Sterling.

Intangible assets amortization increased $27.4 million, or 607.7%, from $4.5 million for the year ended December 31, 2021, to $31.9 million for the year ended December 31, 2022, primarily due to the additional amortization expense related to the core deposit and customer relationship intangible assets acquired in connection with the Sterling merger and Bend acquisition.

Professional and outside services increased $70.3 million, or 148.8%, from $47.2 million for the year ended December 31, 2021, to $117.5 million for the year ended December 31, 2022, primarily due to a $50.8 million increase in merger-related expenses, particularly as it relates to advisory, legal, and consulting fees, and an increase in other professional service costs due to the impact of the merger with Sterling.

Deposit insurance increased $10.8 million, or 68.3%, from $15.8 million for the year ended December 31, 2021, to

$26.6 million for the year ended December 31, 2022, primarily due to an increase in the Company's deposit insurance assessment base resulting from the merger with Sterling.

Other expense increased $102.8 million, or 132.8%, from $77.3 million for the year ended December 31, 2021, to $180.1 million for the year ended December 31, 2022, primarily due to an increase in other expenses due to the impact of the merger with Sterling, a $32.1 million increase in merger-related expenses, particularly as it relates to disposals of property and equipment and contract termination costs, and a $10.5 million common stock contribution to the Webster Bank Charitable Foundation.

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Income Taxes

The Company recognized income tax expense of $153.7 million for the year ended December 31, 2022, and $125.0 million for the year ended December 31, 2021, reflecting effective tax rates of 19.3% and 23.4%, respectively.

The $28.7 million increase in income tax expense is primarily due to an overall higher level of pre-tax income recognized for the year ended December 31, 2022, as compared to 2021, resulting from the impact of the Company's merger with Sterling. The 4.1% point decrease in the effective tax rate from December 31, 2021, to December 31, 2022, primarily reflects the effects of increased tax-exempt income and tax credits in 2022, combined with the impact that the one-time charges incurred by the Company in 2022, had on its pre-tax income for the year, all of which resulted from the Sterling merger. The decrease in the effective tax rate for the year ended December 31, 2022, also reflects a $9.0 million net deferred SALT benefit associated with the merger with Sterling that was recognized in 2022, including a $9.9 million benefit related to a change in management's estimate about the realizability of the Company's SALT DTAs due to an estimated increase in future taxable income.

At December 31, 2022, and 2021, the Company recorded a valuation allowance on its DTAs of $29.2 million and $37.4 million, respectively. The $29.2 million at December 31, 2022, reflects a reduction of $9.9 million for the change in management's estimate discussed in the paragraph above, and includes a $1.7 million valuation allowance related to the Bend acquisition. At December 31, 2022, and 2021, the Company's gross DTAs included $66.9 million and $64.4 million, respectively, applicable to SALT net operating loss and credit carryforwards that are available to offset future taxable income, generally through 2032. The $66.9 million at December 31, 2022, includes $5.6 million related to the Sterling merger and $1.1 million related to the Bend acquisition. The Company's total gross DTAs at December 31, 2022, also included $4.6 million and $0.6 million, respectively, of federal net operating loss and credit carryforwards related to the Sterling merger and Bend acquisition, which are subject to annual limitations on utilization.

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

On August 16, 2022, the IRA was signed into law. The IRA includes various tax provisions, which are generally effective for tax years beginning on or after January 1, 2023. While the Company is still evaluating these tax law changes, it does not expect them to have a material impact on the Company's Consolidated Financial Statements.

Additional information regarding the Company's income taxes, including DTAs, can be found within Note 9: Income Taxes in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.

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Segment Reporting

The Company's operations are organized into three reportable segments that represent its primary businesses: Commercial Banking, HSA Bank, and Consumer Banking. These segments reflect how executive management responsibilities are assigned, how discrete financial information is evaluated, the type of customer served, and how products and services are provided. Segments are evaluated using PPNR. Certain Treasury activities, along with the amounts required to reconcile profitability metrics to those reported in accordance with GAAP, are included in the Corporate and Reconciling category. Additional information regarding the Company's reportable segments and its segment reporting methodology can be found within

Note 21: Segment Reporting in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.

Effective January 1, 2022, the Company realigned its investment services operations from Commercial Banking to Consumer Banking (called Retail Banking in 2021) to better serve its customers and deliver operational efficiencies. Under this realignment, $125.4 million of deposits and $4.3 billion of assets under administration (off-balance sheet) were reassigned from Commercial Banking to Consumer Banking. The Company also realigned certain product management and customer contact center operations from both Commercial Banking and Consumer Banking to the Corporate and Reconciling category, which resulted in an insignificant reassignment of assets and liabilities.

There was no goodwill reallocation nor goodwill impairment as a result of these realignments. In addition, the non-interest expense allocation methodology was modified to exclude certain overhead and merger-related costs that are not directly related to segment performance. Prior period balance sheet information and results of operations have been recast accordingly to reflect these realignments.

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

Commercial Banking serves businesses with more than $2 million of revenue through its Commercial Real Estate and Equipment Finance, Middle Market, Business Banking, Asset-Based Lending and Commercial Services, Public Sector Finance, Mortgage Warehouse, Sponsor and Specialty Finance, Verticals and Support, Private Banking, and Treasury Management business units.

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

Consumer Banking serves individual customers and small businesses with less than $2 million of revenues by offering consumer deposits, residential mortgages, home equity lines, secured and unsecured loans, debit and credit card products, and investment services. Consumer Banking operates a distribution network consisting of 201 banking centers and 352 ATMs, a customer care center, and a full range of web and mobile-based banking services, primarily throughout southern New England and the New York Metro and Suburban markets.

Effective as of the fourth quarter of 2022, the presentation of Consumer Banking's operating results was impacted by the restructuring of a process by which the Company offers brokerage, investment advisory, and certain insurance-related services to customers. The staff providing these services, which had previously been employees of the Bank, are now employees of a third-party service provider. As a result, the Company now recognizes income from this program on a net basis, which thereby reduces gross reported non-interest income and corresponding compensation non-interest expense. This restructuring did not have a significant net impact on 2022 PPNR, nor is it expected to have a significant net impact on PPNR in future periods.

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Commercial Banking

Operating Results:

Commercial Banking's PPNR increased $643.9 million, or 135.3%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021, due to increases in both net interest income and non-interest income, partially offset by an increase in non-interest expense, all of which were primarily driven by the merger with Sterling. The $761.1 million increase in net interest income is primarily attributed to the loan and deposit balances acquired from Sterling, organic loan growth, and the impact of the higher interest rate environment. The $87.9 million increase in non-interest income is primarily attributed to an increase in fee income due to the merger with Sterling, and higher loan fee income and interest rate derivative activities. The $205.1 million increase in non-interest expense is primarily attributed to an increase in expenses incurred as it relates to the acquired Sterling commercial business, and costs to support loan and deposit growth.

Selected Balance Sheet and Off-Balance Sheet Information:

Loans and leases increased $24.9 billion, or 163.7%, at December 31, 2022, as compared to at December 31, 2021, primarily due to the merger with Sterling, as well as organic growth within the commercial real estate and the commercial non-mortgage categories. Total portfolio originations for the years ended December 31, 2022, and 2021, were $14.7 billion and $5.7 billion, respectively. The $9.0 billion increase was primarily attributed to the merger with Sterling, along with increased commercial non-mortgage and commercial real estate originations.

Deposits increased $10.0 billion, or 105.5%, at December 31, 2022, as compared to at December 31, 2021, primarily due to the merger with Sterling.

Commercial Banking held $0.6 billion and $0.8 billion in assets under administration and $1.7 billion and $2.1 billion in assets under management at December 31, 2022, and 2021, respectively. The combined decrease of $0.6 billion, or 21.3%, was primarily due to lower valuations in the equity markets and client investment outflows during 2022.

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HSA Bank

Operating Results:

HSA Bank's pre-tax net revenue increased $34.3 million, or 25.0%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021, due to increases in both net interest income and non-interest income, partially offset by an increase in non-interest expense. The $49.6 million increase in net interest income is primarily attributed to an increase in the net interest rate spread on deposits and overall deposit growth. The $1.8 million increase in non-interest income is primarily attributed to higher interchange income from increased debit card spending. The $17.1 million increase in non-interest expense is primarily attributed to an increase in expenses incurred as it pertains to the Bend acquired business, as well as increases in base and incentive compensation, temporary help, travel and entertainment, and consulting expenses.

Selected Balance Sheet and Off-Balance Sheet Information:

Deposits increased $546.9 million, or 7.4%, at December 31, 2022, as compared to at December 31, 2021, primarily due to an increase in the number of account holders and organic deposit growth, which was partially offset by a decrease in third party administrator deposits. HSA deposits accounted for approximately 14.7% and 24.8% of the Company's total consolidated deposits at December 31, 2022, and 2021, respectively, with the lower mix in 2022 driven by the inflow of deposits as a result of the merger with Sterling.

Assets under administration, through linked brokerage accounts, decreased $324.8 million, or 8.7%, at December 31, 2022, as compared to at December 31, 2021, primarily due to lower valuations in the equity markets during 2022, which was partially offset by additional account holders and balances from the acquisition of Bend.

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Consumer Banking

Operating Results:

Consumer Banking's PPNR increased $240.4 million, or 138.1%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021, due to increases in both net interest income and non-interest income, partially offset by an increase in non-interest expense, all of which were primarily driven by the merger with Sterling. The $345.5 million increase in net interest income is primarily attributed to the loan and deposit balances acquired from Sterling, organic loan growth, and the impact of the higher interest rate environment. The $23.8 million increase in non-interest income is primarily attributed to an increase in fee income due to the merger with Sterling, and increased deposit and loan servicing fees, partially offset by lower net investment services income and mortgage banking activities. The $128.9 million increase in non-interest expense is primarily attributed to an increase in expenses incurred as it relates to the acquired Sterling consumer business, partially offset by lower compensation and occupancy expenses.

Selected Balance Sheet Information:

Loans increased $2.6 billion, or 36.3%, at December 31, 2022, as compared to at December 31, 2021, primarily due to the merger with Sterling and growth in residential mortgages, partially offset by the forgiveness of PPP loans, net attrition in home equity balances, and the continued run-off of consumer Lending Club loans. Total portfolio originations for the years ended December 31, 2022, and 2021, were $2.8 billion and $3.2 billion, respectively. The $0.4 billion decrease was primarily attributed to increased market rates, which resulted in lower residential mortgage refinancing activities, in addition to the cessation of PPP loan originations in May 2021, partially offset by increased residential mortgage originations.

Deposits increased $10.7 billion, or 82.7%, at December 31, 2022, as compared to at December 31, 2021, primarily due to the merger with Sterling, partially offset by net outflows in customer checking account balances.

Assets under administration increased $3.6 billion, or 81.7%, at December 31, 2022, as compared to at December 31, 2021, primarily due to the merger with Sterling, partially offset by lower valuations in the equity markets during 2022.

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Financial Condition

Total assets increased $36.4 billion, or 104.1%, from $34.9 billion at December 31, 2021, to $71.3 billion at

December 31, 2022. The change in total assets was primarily attributed to the following, which experienced changes greater than one billion dollars:

•Total investment securities, net increased $4.1 billion, reflecting increases of $3.7 billion and $0.4 billion in the AFS and HTM portfolios, respectively, primarily due to $4.4 billion of investment securities acquired from Sterling in the merger, all of which were classified as AFS based on Webster's intent at closing, and purchases exceeding paydown activities, partially offset by an increase in net unrealized losses within the AFS portfolio.

•Loans and leases increased $27.5 billion, reflecting increases of $24.9 billion and $2.6 billion in the commercial and consumer portfolios, respectively, primarily due to $20.5 billion of gross loans and leases acquired from Sterling in the merger, which included a $317.6 million purchase discount. The Company also originated $17.5 billion of loans and leases for portfolio during the year ended December 31, 2022, particularly across the commercial non-mortgage, commercial real estate, and residential mortgage loan categories. These increases were partially offset by net paydowns, commercial portfolio loan sales, the forgiveness of PPP loans, net attrition in home equity balances, and the continued run-off of consumer Lending Club loans. In addition, the Company recorded a net $88.0 million and $175.1 million of initial ACL for the PCD and non-PCD loans and leases acquired from Sterling, respectively, which primarily contributed to the $293.6 million increase in the ACL on loans and leases.

•Goodwill and other net intangible assets increased a combined $2.2 billion. Goodwill increased $2.0 billion, which reflects the $1.9 billion and $36.0 million recognized in connection with the Sterling merger and Bend acquisition, respectively. The $181.5 million increase in other net intangible assets is primarily due to the $119.1 million core deposit and $94.0 million customer relationship intangible assets acquired from Sterling and Bend, respectively, partially offset by year to date amortization charges.

•Accrued interest receivable and other assets increased $1.1 billion, primarily due to an increase in balances acquired from Sterling in the merger. Notable increases included $684.6 million in LIHTC investments, $201.1 million in accrued interest receivable, $82.4 million in alternative investments, and a combined $35.9 million in accounts receivable and prepaid expenses. These increases were partially offset by a decrease of $87.2 million in treasury derivative assets.

Total liabilities increased $31.7 billion, or 100.8%, from $31.5 billion at December 31, 2021, to $63.2 billion at

December 31, 2022. The change in total liabilities was attributed to the following:

•Total deposits increased $24.2 billion,with increases of $5.9 billion and $18.3 billion in non-interest bearing deposits and interest-bearing deposits, respectively, primarily due to $23.3 billion of total deposits assumed from Sterling in the merger.

•Securities sold under agreements to repurchase and other borrowings increased $476.9 million, primarily due to an increase of $869.8 million in overnight federal funds, partially offset by a decrease of $392.9 million in securities sold under agreements to repurchase, which resulted from the extinguishment of two $100 million structured repurchase agreements during the third quarter of 2022, as well as the overall timing of maturities.

•FHLB advances increased $5.4 billion, primarily due to short-term funding needs.

•Long-term debt increased $510.2 million, primarily due to $499.0 million aggregate par value of subordinated notes assumed from Sterling in the merger, adjusted for a $17.9 million purchase premium, which is being amortized over the remaining lives of the subordinated notes.

•Accrued expenses and other liabilities increased $1.1 billion, primarily due to an increase in balances assumed from Sterling in the merger, and the overall timing of payments for professional services rendered and other obligations. Notable increases included $404.4 million in treasury derivative liabilities, $324.9 million in unfunded commitments for LIHTC investments, $94.5 million in operating lease liabilities, $51.5 million in accrued annual employee bonuses, and

$19.0 million in accrued interest payable.

Total stockholders' equity increased $4.7 billion, or 134.3%, from $3.4 billion at December 31, 2021, to $8.1 billion at December 31, 2022. The change in stockholders' equity was attributed to the following:

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

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

•Net income recognized of $644.3 million.

•Dividends paid to common and preferred stockholders of $247.8 million and $15.9 million, respectively.

•Other comprehensive loss, net of tax, of $662.4 million, primarily due to market value decreases in the Company's AFS securities portfolio and cash flow hedges.

•A common stock contribution of $10.5 million to the Webster Bank Charitable Foundation.

•Employee stock-based compensation plan activity of $54.1 million, inclusive of restricted stock amortization and forfeitures, and stock options exercised of $0.7 million.

•Repurchases of common stock of $322.1 million under the Company's common stock repurchase program and $23.7 million related to employee share-based compensation plans.

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Investment Securities

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

The ALCO manages the Company's securities in accordance with regulatory guidelines and corporate policies, which include limitations on aspects such as concentrations in and types of investments, as well as minimum risk ratings per type of security. In addition, the OCC may further establish individual limits on certain types of investments if the concentration in such investment presents a safety and soundness concern. At December 31, 2022, and 2021, the Company had investment securities with a total net carrying value of $14.5 billion and $10.4 billion, respectively, with an average risk weighting for regulatory purposes of 19.0% and 12.5%, respectively. Although the Bank held the entirety of the Company's investment securities portfolio at both December 31, 2022, and 2021, the Holding Company may also directly hold investments.

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

(1)The balances at both December 31, 2022, and 2021, exclude the ACL recorded on HTM debt securities of $0.2 million.

AFS securities increased $3.7 billion, or 86.4%, from $4.2 billion at December 31, 2021, to $7.9 billion at December 31, 2022, primarily due to the merger with Sterling, as the Company acquired $4.4 billion of debt securities at fair value on

January 31, 2022, all of which were classified as AFS based on the Company's intent at closing. The investment securities acquired from Sterling resulted in a $221.6 million net purchase premium over par value accounted for as a yield adjustment using the effective interest method. The Company also purchased an additional $1.1 billion of AFS securities during the year ended December 31, 2022. These increases were partially offset by an increase in net unrealized losses, as well as paydowns, maturities, sales, and net premium amortization activities during the year ended December 31, 2022, particularly across the Agency MBS, Agency CMBS, Municipal bonds and notes, and CMBS categories.

The FTE yield in the AFS portfolio was 2.29% for the year ended December 31, 2022, as compared to 1.73% for the year ended December 31, 2021. The 56 basis point increase is attributed to higher rates on securities purchased throughout 2022. AFS securities are evaluated for credit losses on a quarterly basis. For the years ended December 31, 2022, and 2021, gross unrealized losses on AFS securities were $864.5 million and $34.3 million, respectively. The $830.2 million increase is primarily due to the increased portfolio size from the merger with Sterling, and higher market rates. Because these unrealized losses were attributable to factors other than credit deterioration, no ACL was recorded during either period. At

December 31, 2022, the Company did not intend to sell these AFS investment securities, and it is more likely than not that, based on management's current expectations, the Company will not be required to sell these AFS securities prior to the anticipated recovery of their cost basis.

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HTM securities increased $0.4 billion, or 5.9%, from $6.2 billion at December 31, 2021, to $6.6 billion at December 31, 2022, primarily due to purchases exceeding paydowns, maturities, and net premium amortization, particularly across the Agency CMBS, Agency MBS, and Municipal bonds and notes categories. The FTE yield in the HTM portfolio was 2.33% for the year ended December 31, 2022, as compared to 2.21% for the year ended December 31, 2021. The 12 basis point increase is attributed to higher rates on securities purchased in the current period. HTM securities are evaluated for credit losses on a quarterly basis under the CECL methodology. At December 31, 2022, and 2021, gross unrealized losses were $806.2 million and $55.7 million, respectively. The $750.5 million increase is primarily due to higher market rates. The ACL on HTM securities was $0.2 million at both December 31, 2022, and 2021.

The following table summarizes the book value of investment securities by the earlier of either contractual maturity or call date, as applicable, along with the respective weighted-average yields:

(1)Weighted-average yields exclude FTE adjustments, and are calculated using the sum of the total book value multiplied by the yield divided by the sum of the total book value for each security, major type, and maturity bucket.

Additional information regarding the Company's AFS and HTM investment securities' portfolios can be found within

Note 3: Investment Securities in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.

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Loans and Leases

The following table summarizes the amortized cost and percentage composition of the Company's loans and leases:

(1)The amortized cost balances at December 31, 2022, and 2021, exclude the ACL recorded on loans and leases of $594.7 million and $301.2 million, respectively.

The following table summarizes loans and leases by contractual maturity, along with the indication of whether interest rates are fixed or variable:

(1)Amounts due exclude total accrued interest receivable of $226.3 million.

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Credit Policies and Procedures

The Bank has credit policies and procedures in place designed to support its lending activities within an acceptable level of risk, which are reviewed and approved by management and the Board of Directors on a regular basis. To assist with this process, management inspects reports generated by the Company's loan reporting systems related to loan production, loan quality, concentrations of credit, loan delinquencies, non-performing loans, and potential problem loans.

Commercial non-mortgage, asset-based, equipment finance, and warehouse lending loans are underwritten after evaluating and understanding the borrower’s ability to operate and service its debt. Assessment of the borrower's management is a critical element of the underwriting process and credit decision. Once it has been 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 obligations, as contracted. Commercial non-mortgage, asset-based, and equipment finance loans are primarily made based on the identified cash flows of the borrower, and secondarily on the underlying collateral provided by the borrower. Warehouse lending loans are primarily made based on the borrower's ability to originate high-quality, first-mortgage residential loans that can be sold into the agency, government, or private jumbo markets, and secondarily on the underlying cash flows of the borrower. However, the cash flows of borrowers may not be as expected, and the collateral securing these loans, as applicable, may fluctuate in value. Most commercial non-mortgage, asset-based, and equipment finance loans are secured by the assets being financed and may incorporate personal guarantees of the principal balance. Warehouse lending loans are generally uncommitted facilities.

Commercial real estate loans, including multi-family, are subject to underwriting standards and processes similar to those for commercial non-mortgage, asset-based, equipment finance, and warehouse lending loans. These loans are primarily viewed as cash flow loans, and secondarily as loans secured by real estate. Repayment of commercial real estate 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. All transactions are appraised to determine market value. 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 specific risk characteristics of the portfolio. These policies and procedures, coupled with relatively small individual loan amounts and predominately collateralized loan structures, are spread across many different borrowers, minimizing the level of credit risk. Trend and outlook reports are reviewed by management on a regular basis, and policies and procedures are modified or developed, as needed. Underwriting factors for residential mortgage and home equity loans include the borrower’s FICO score, the loan amount relative to property value, and the borrower’s debt-to-income level. The Bank originates both qualified mortgage and non-qualified mortgage loans, as defined by applicable CFPB rules.

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Allowance for Credit Losses on Loans and Leases

The ACL on loans and leases increased $293.5 million, or 97.5%, from $301.2 million at December 31, 2021, to $594.7 million at December 31, 2022, primarily due to the initial ACL of $88.0 million and $175.1 million recorded for PCD and non-PCD loans and leases, respectively, that were acquired from Sterling in the merger, as well as organic loan growth and commercial portfolio optimization initiatives. The establishment of the initial ACL for PCD loans and leases is net of $48.3 million in charge-offs, which were recognized upon completion of the merger in accordance with GAAP.

The following table summarizes the percentage allocation of the ACL across the loans and leases categories:

(1)The ACL allocated to a single loan and lease category does not preclude its availability to absorb losses in other categories.

Methodology

The Company's ACL on loans and leases is considered to be 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 that are expected to occur over the life of the asset. Executive management reviews and advises on the adequacy of the allowance, which is maintained at a level that management deems to be sufficient to cover expected losses within the loan and lease portfolios.

The ACL on loans and leases is determined using the CECL model, whereby an expected lifetime credit loss is recognized at the origination or purchase of an asset, including those acquired through a business combination, which is then reassessed at each reporting date over the contractual life of the asset. The calculation of expected credit losses includes consideration of past events, current conditions, and reasonable and supportable economic forecasts that affect the collectability of the reported amounts. Generally, expected credit losses are determined through a pooled, collective assessment of loans and leases with similar risk characteristics. However, if the risk characteristics of a loan or lease change such that it no longer matches that of the collectively assessed pool, it is removed from the population and individually assessed for credit losses. The total ACL on loans and leases recorded by management represents the aggregated estimated credit loss determined through both the collective and individual assessments.

Collectively Assessed Loans and Leases. Collectively assessed loans and leases are segmented based on product type, credit quality, risk ratings, and/or collateral types within its commercial and consumer portfolios, and expected losses are determined using a PD, LGD, and EAD, loss rate, or discounted cash flow framework.

For portfolios using the PD/LGD/EAD framework, credit losses are calculated as the product of the probability of a loan defaulting, expected loss given the occurrence of a default, and the expected exposure of a loan at default. Summing the product across loans over their lives yields the lifetime expected credit losses for a given portfolio. Management'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, loan-level risk attributes, and credit quality indicators. The calculation of EAD follows an iterative process to determine the expected remaining principal balance of a loan based on historical paydown rates for loans of a similar segment within the same portfolio. The calculation of portfolio exposure in future quarters incorporates expected losses, the loan's amortization schedule, and prepayment rates.

Under the loss rate method, expected credit losses are estimated using a loss rate that is multiplied by the amortized cost of the asset at the balance sheet date. For each loan segment identified above, management applies an expected historical loss trend based on third-party loss estimates, correlate them to observed economic metrics, and reasonable and supportable forecasts of economic conditions. Under the discounted cash flow method, expected credit losses are determined by comparing the amortized cost of the asset at the balance sheet date to the present value of estimated future principal and interest payments expected to be collected over the remaining life of the asset. The Company's loss model generates cash flow projections at the loan level based on reasonable and supportable projections, from which management estimates payment collections adjusted for curtailments, recovery time, PD, and LGD.

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The Company's models incorporate a single economic forecast scenario and macroeconomic assumptions over a reasonable and supportable forecast period. The development of the reasonable and supportable forecast assumes each macroeconomic variable will revert to long-term expectations, with reversion characteristics unique to specific economic indicators and forecasts. Reversion towards long-term expectations generally begins two to three years from the forecast start date and is complete within three to five years. Certain models use output reversion and revert to mean historical portfolio loss rates on a

straight-line basis in the third year of the forecast. Other models use input reversion and revert to the mean of macroeconomic variables in reasonable and supportable forecasts.

The Company incorporates forecasts of macroeconomic variables in the determination of expected credit losses. Macroeconomic variables are selected for each class of financing receivable based on relevant factors, such as asset type and the correlation of the variables to credit losses, among others. Data from the forecast scenario of these variables is used as an input to the modeled loss calculation.

A portion of the collective ACL is comprised of qualitative adjustments for risk characteristics that are not reflected or captured in the quantitative models, but are likely to impact the measurement of estimated credit losses. Qualitative factors are based on management's judgement of the Company, market, industry, or business specific data including loan trends, portfolio segment composition, and loan rating or credit scores. Qualitative adjustments may be applied in relation to economic forecasts when relevant facts and circumstances are expected to impact credit losses, particularly in times of significant volatility in economic activity.

Individually Assessed Loans and Leases. If the risk characteristics of a loan or lease change such that it no longer matches the risk characteristics of the collectively assessed pool, it is removed from the population and individually assessed for credit losses. Generally, all non-accrual loans, TDRs and reasonably expected TDRs (prior to January 1, 2023), loans with a charge-off, and collateral dependent loans where the borrower is experiencing financial difficulty, are individually assessed. The measurement method used to calculate the expected credit loss on an individually assessed loan or lease is dependent on the type and whether the loan or lease is considered to be collateral dependent. Methods for collateral dependent loans are either based on the fair value of the collateral less estimated cost to sell (when the basis of repayment is the sale of collateral), or the present value of the expected cash flows from the operation of the collateral. For non-collateral dependent loans, either a discounted cash flow method or other loss factor method is used. Any individually assessed loan or lease for which no specific valuation allowance is deemed necessary is either the result of sufficient cash flows or sufficient collateral coverage relative to the amortized cost of the asset.

Additional information regarding the Company's ACL methodology can be found within Note 1: Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data.

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Asset Quality Ratios

The Company manages asset quality using risk tolerance levels established through the Company's underwriting standards, servicing, and management of its loan and lease portfolio. Loans and leases for which a heightened risk of loss has been identified are regularly monitored to mitigate further deterioration and preserve asset quality in future periods. Non-performing assets, credit losses, and net charge-offs are considered by management to be key measures of asset quality.

The following table summarizes key asset quality ratios and their underlying components:

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

The following table summarizes net charge-offs (recoveries) as a percentage of average loans and leases for each category:

Net charge-offs as a percentage of average loans and leases were 0.15%, 0.02%, and 0.21% for the years ended December 31, 2022, 2021, and 2020, respectively. The increased level of net charge-offs in the current year is primarily attributed to commercial portfolio optimization initiatives, along with favorable credit performance in 2021, as compared to 2022, as the economy benefited from the support of federal stimulus programs in the prior year.

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Liquidity and Capital Resources

The Company manages its cash flow requirements through proactive liquidity measures at both the Holding Company and the Bank. In order to maintain stable, cost-effective funding, and to promote overall balance sheet strength, the liquidity position of the Company is continuously monitored, and adjustments are made to balance sources and uses of funds, as appropriate. At December 31, 2022, management is not aware of any events that are reasonably likely to have a material adverse effect on the Company’s liquidity position, capital resources, or operating activities. Further, management is not aware of any regulatory recommendations regarding liquidity, that if implemented, would have a material adverse effect on the Company.

Cash inflows are provided through a variety of sources, including principal and interest payments on loans and investments, unpledged securities that can be sold or utilized to secure funding, and new deposits. The Company is committed to maintaining a strong base of core deposits, which consists of demand, interest-bearing checking, savings, health savings, and money market accounts, to support growth in its loan portfolios. Management actively monitors the interest rate environment and makes adjustments to its deposit strategy in response to evolving market conditions, bank funding needs, and client relationship dynamics. For additional information, see the discussion below regarding the Bank's liquidity, and under the section captioned "Asset/Liability Management and Market Risk" contained elsewhere in this Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Holding Company Liquidity. The primary source of liquidity at the Holding Company is dividends from the Bank. To a lesser extent, investment income, net proceeds from investment sales, borrowings, and public offerings may provide additional liquidity. The Holding Company generally uses its funds for principal and interest payments on senior notes, subordinated notes, and junior subordinated debt, dividend payments to preferred and common stockholders, repurchases of its common stock, and purchases of investment securities, as applicable.

There are certain restrictions on the Bank's payment of dividends to the Holding Company, which are described within the section captioned "Supervision and Regulation" in Part I - Item 1. Business, and within Note 14: Regulatory Capital and Restrictions in the Notes to Consolidated Financial Statements contained in Part II - Item 8. Financial Statements and Supplementary Data. The Bank paid $475.0 million in dividends to the Holding Company during the year ended

December 31, 2022. At December 31, 2022, there were $701.4 million of retained earnings available for the payment of dividends by the Bank to the Holding Company. On January 25, 2023, Webster Bank was approved to pay the Holding Company $150.0 million in dividends during the first quarter of 2023.

The quarterly cash dividend to common stockholders remained at $0.40 per common share throughout 2022. On

January 25, 2023, it was announced that the Company's Board of Directors had declared a quarterly cash dividend of $0.40 per share on Webster common stock. For the Series F Preferred Stock and Series G Preferred Stock, quarterly cash dividends of $328.125 per share and $16.25 per share were declared, respectively. The Company continues to monitor economic forecasts, anticipated earnings, and its capital position in the determination of its dividend payments.

The Company maintains a common stock repurchase program, which was approved by the Board of Directors, that authorizes management to purchase shares of its common stock in open market or privately negotiated transactions, through block trades, and pursuant to any adopted predetermined trading plan, subject to certain conditions. On April 27, 2022, the Board of Directors increased the Company's authority to repurchase shares of its common stock under the repurchase program by

$600.0 million in shares. During the year ended December 31, 2022, the Company repurchased 6,399,288 shares under the program at a weighted-average price of $50.33 per share, totaling $322.1 million. The Company's remaining purchase authority at December 31, 2022, was $401.3 million. In addition, the Company will periodically acquire common shares outside of the repurchase program related to employee stock compensation plan activity. During the year ended December 31, 2022, the Company repurchased 415,629 shares at a weighted-average price of $56.90 per share, totaling $23.6 million for this purpose.

The IRA, which was signed into law on August 16, 2022, imposes a 1% excise tax on net repurchases of stock by certain publicly traded corporations, including the Company. The excise tax is to be imposed on the value of the net stock repurchased, or treated as repurchased, and will apply to the Company's stock repurchases that occur after December 31, 2022.

On July 8, 2022, the Holding Company made an unrestricted and unconditional contribution of 242,270 Webster common shares to the Webster Bank Charitable Foundation, a nonprofit charitable organization with a focus on education and community development that serves communities in the Greater New York City, Lower Hudson Valley, Long Island, and New Jersey areas. The fair value of these shares based on their closing price on the contribution date was $10.5 million.

Webster Bank Liquidity. The Bank's primary source of funding is its core deposits. Including time deposits, the Bank had a loan to total deposit ratio of 92.1% and 74.6% at December 31, 2022, and 2021, respectively. The 17.5% point increase is primarily attributed to loan growth exceeding deposit growth.

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The Bank is required by OCC regulations to maintain a sufficient level of liquidity to ensure safe and sound operations. The adequacy of liquidity, as assessed by the OCC, depends on factors such as overall asset and liability structure, market conditions, competition, and the nature of the institution’s deposit and loan customers. At December 31, 2022, the Bank exceeded all regulatory liquidity requirements. The Company has designed a detailed contingency plan in order to respond to any liquidity concerns in a prompt and comprehensive manner, including early detection of potential problems and corrective action to address liquidity stress scenarios.

Capital Requirements. The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that 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 the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated pursuant to regulatory directives. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require financial institutions to maintain minimum ratios of Common Equity Tier 1 Capital, defined by Basel III capital rules (CET1 capital), Tier 1 capital, Total capital to risk-weighted assets, and Tier 1 capital to average tangible assets (as defined in the regulations). At December 31, 2022, both the Company and the Bank were classified as well-capitalized. Management believes that no events or changes have occurred subsequent to year-end that would change this designation.

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, which ended on January 1, 2022, and subsequent three-year transition period ending on December 31, 2024. During the three-year transition period, capital ratios will begin to phase out the aggregate amount of the regulatory capital benefit provided from the delayed CECL adoption during the initial two years. For 2022, 2023, and 2024, the Company is allowed 75%, 50%, and 25% of the regulatory capital benefit as of December 31, 2021, respectively, with full absorption occurring in 2025. At December 31, 2022, the benefit allowed from the delayed CECL adoption resulted in a 9, 9, and 6 basis point increase to the Company's and the Bank's CET1 capital to total risk-weighted assets (CET1 risk-based capital), Tier 1 capital to total risk-weighted assets (Tier 1 risk-based capital), and Tier 1 capital to average tangible assets (Tier 1 leverage capital), respectively, and a 2 basis point decrease to Total capital to total

risk-weighted assets (Total risk-based capital). Both the Company's and the Bank's ratios remain in excess of being

well-capitalized, even without the benefit of the delayed CECL adoption impact.

Additional information regarding the required capital levels and ratios applicable to the Company and the Bank can be found within Note 14: Regulatory Capital and Restrictions in the Notes to Consolidated Financial Statements contained in