Webster Financial Corporation (collectively, with its consolidated subsidiaries, “Webster,” the “Company,” our company, we or us), is a bank holding company and financial holding company under the Bank Holding Company Act, of 1956, as amended, headquartered in Waterbury, Connecticut and incorporated under the laws of Delaware in 1986. At December 31, 2014, Webster Financial Corporation’s1986, and headquartered in Waterbury, Connecticut. Its principal asset wasis all of the outstanding capital stock of Webster Bank, National Association (“Webster Bank”)(Webster Bank).

The Company delivers a wide range of banking, investment, and financial services to businesses and individuals families, and businesses primarily from New York, N.Y. to Boston, Mass.through three reportable segments - Commercial Banking, HSA Bank, a division of Webster Bank, National Association (HSA Bank), and Community Banking.

Webster Financial Corporation is a legal entity separate and distinct legal entity from Webster Bank and its other subsidiaries. As a registered bank holding company and a financial holding company Websterit is subject to inspection, examination, and supervision by the Board of Governors of the Federal Reserve System, and is regulated under the Bank Holding Company Act of 1956, as amended (“BHC Act”), and is subject to inspection, examination, and supervision by the Federal Reserve Board ("FRB")(BHC Act). Webster is also under the jurisdiction of the United States Securities and Exchange Commission ("SEC")SEC and is subject to the disclosure and other regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as administered by the SEC. Webster's common stockWebster is subject to the rules for companies listed on the New York Stock Exchange (“NYSE”) underExchange. In addition, the trading symbol “WBS” andConsumer Financial Protection Bureau (CFPB) supervises Webster for compliance with federal consumer financial protection laws. Webster also is subject to the rulesoversight by state attorneys general for compliance with state consumer protection laws. Webster's non-bank subsidiaries are subject to federal and state laws and regulations, including regulations of the NYSE for listed companies.Federal Reserve System.

In general,Webster Financial Corporation is a bank holding company as defined under the BHC Act. The BHC Act generally limits the business of bank holding companies to banking, managing or controlling banks, and other activities that the FRBBoard of Governors of the Federal Reserve System has determined to be so closely related to banking as to be a proper incident thereto. Bank holding companies that arehave elected to become financial holding companies, such as Webster Financial Corporation, may engage in any activity, or acquire and retain the shares of a company engaged in any activity that is either (i) financial in nature or incidental to such financial activity (as determined by the FRBBoard of Governors of the Federal Reserve System in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity, and that does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by the FRB)Board of Governors of the Federal Reserve System). Activities that are financial in nature include securities underwriting and dealing, insurance underwriting, and making merchant banking investments.

The BHC Act, the Bank Merger Act, and other federal and state statutes regulate acquisitionsthe direct and indirect acquisition of commercial banks.depository institutions. The BHC Act requires the prior Federal Reserve System approval of the FRB for the directa bank holding company to acquire, directly or indirect acquisition ofindirectly, 5% or more of theany class of voting sharessecurities of a commercial bank or its parent holding company and for a company, other than a bank holding company, to acquire 25% or more of any class of voting securities of a bank or bank holding company.  Under the Change in Bank Control Act, any person, including a company, may not acquire, directly or indirectly, control of a bank without providing 60 days prior notice and receiving a non-objection from the appropriate federal banking agency. 

The Dodd-Frank Act is extensive, complicated, and comprehensive legislationrequires that impacts practically all aspects of a banking organization and represents a significant overhaul of many aspects of the regulation of the financial services industry. The Dodd-Frank Act implements numerous and far-reaching changes that affect financial companies, including BHCs and banks such as Webster and Webster Bank, by, among other things:

The SEC and the Commodity Futures Trading Commission (together, the “Commissions”)(CFTC) jointly issued final rules and guidelines toimplementing provisions of the Dodd-Frank Act which require certain regulated entities to establish programs to address risks of identity theft. The rules and guidelines implement provisions of the Dodd-Frank Act. These provisions amended Section 615(e) of the Fair Credit Reporting Act and directed the Commissions to adopt rules requiring entities that are subject to the Commissions’ jurisdiction to address identity theft in two ways. First, the rules require financial institutions and creditors to develop and implement a written identity theft prevention program that is designed to detect, prevent, and mitigate identity theft in connection with certain existing accounts or the opening of new accounts. The rules include guidelines to assist entities in the formulation and maintenance of programs that would satisfy the requirements of the rules. Second,these requirements. In addition, the rules establish special requirements for any credit and debit card issuers that are subject to the Commissions’ jurisdiction of the SEC or the CFTC, to assess the validity of notifications of changes of address under certain circumstances. Webster implemented an ID Theft Prevention Program, approved on April 25, 2013 by its Board of Directors, to addressin compliance with these requirements.

Section 619 of the Dodd-Frank Act, commonly known as the Volcker Rule. The Volcker Rule, restricts the ability of banking entities, such as Webster to engageand Webster Bank, from: (i) engaging in proprietary trading and (ii) investing in or sponsoring certain covered funds, subject to own, sponsor, or have certain relationships with hedgelimited exceptions. Under the Volcker Rule, the term covered funds or private equity funds,is defined as Covered Funds. The final rule definitionany issuer that would be an investment company under the Investment Company Act but for the exemption in section 3(c)(1) or 3(c)(7) of Covered Fundsthat Act, which includes certain investments such as collateralized loan obligation (“CLO”)securities and collateralized debt obligation (“CDO”) securities. Compliance is generally required byThere are also several exemptions from the definition of covered fund, including, among other things, loan securitizations, joint ventures, certain types of foreign funds, entities issuing asset-backed commercial paper, and registered investment companies. The Federal Reserve approved Webster's illiquid funds extension request, thereby providing Webster with up to five additional years, to July 21, 2017.2022, to bring such holdings into compliance with the Volcker Rule.

Title VII of the Dodd-Frank Act imposes a new set of requirements related to over-the-counter derivatives. Key provisions of the Title VII ofregulation are implemented by the Dodd-Frank Act are being implemented through Commodity Futures Trading Commission ("CFTC") rulemakings with respect to previously unregulated derivatives, including interest rate swaps.CFTC. Among other things, the CFTC’sCFTC's rules focus onapply to swap dealers, major swap participants and commercial entities that enter into OTC derivatives transactions to hedge or mitigate risk. Under these new rules and guidance of the CFTC, guidance, end users are subject to a wide range of requirements including capital, margining, clearing, documentation, reporting, eligibility and business conduct requirements.

The principal source of Webster'sthe Holding Company's liquidity is dividends from Webster Bank. The prior approval of the OCC is required if the total of all dividends declared by a national bank in any calendara year would exceed the sum of the bank'sits net income for that year and its undistributed net income for the preceding two calendar years, less any required transfers to surplus. Federal law also prohibits a national banksbank from paying dividends that would be greater than the bank'sits undivided profits after deducting statutory bad debt in excess of the bank's allowance for loan and lease losses. Atlosses (ALLL). Webster Bank paid the Holding Company $120.0 million in dividends during the year ended December 31, 2014, there was $270.22017, and $368.8 million of undistributed net income available for the payment of dividends by Webster Bank to the Company. Webster Bank paid the Company $100.0 million in dividends during the year endedremained at December 31, 2014.2017.

FRBFederal Reserve System regulations require depository institutions to maintain cash reserves against their transaction accounts, primarily interest-bearing and regular checking accounts. Webster Bank'sThe required cash reserves can be in the form of vault cash and, if vault cash does not fully satisfy the required cash reserves, in the form of a balance maintained with Federal Reserve Banks. The Board of Governors of the Federal Reserve Bank of Boston. FRBSystem generally makes annual adjustments to the tiered cash reserve requirements. The regulations currently require that Webster maintain cash reserves be maintained against aggregate transaction accounts except for transaction accounts which arein excess of the exempt up to $14.5 million. Transaction accountsamount of $15.5 million at December 31, 2017. Amounts greater than $14.5$15.5 million up to $103.6and including $115.1 million have a reserve requirement of 3%. A 10% reserve ratio will be assessed on transaction accountsAmounts in excess of $103.6 million. The FRB generally makes annual adjustments to the tiered reserves.$115.1 million have a reserve requirement of 10%. Webster Bank is in compliance with these cash reserve requirements.

The Federal Home Loan Bank (FHLB) System provides a central credit facility for member institutions. Webster Bank is a member of the Federal Home LoanFHLB of Boston. Webster Bank of Boston (“FHLB”). The Bank(the Bank) is required to purchase and hold shares of capital stock in the FHLB infor both membership and activity-based purposes. The capital stock requirement includes an amount equal to 0.35% of the aggregate principal amount of itsthe Bank's unpaid residential mortgage loans and similar obligations at the beginning of each year, up to a maximum of $25.0 million. The Bank is$25 million, and also required to hold shares of capital stock in thean amount based on its FHLB in amountsadvances, which totaled approximately $1.7 billion at December 31, 2017, that vary from 3.0% to 4.5% of its advances, depending on the maturities of those advances. At December 31, 2014,The FHLB recently initiated a process, based on current conditions, to redeem the Bank had approximately $2.9 billionholdings of its member banks in FHLB advances.excess of their membership and activity-based requirements. Webster Bank was in compliance with these requirements, with a total investment in FHLB stock of $142.6$100.9 million at December 31, 2014.2017. On October 29, 2014,November 2, 2017, the FHLB declaredpaid a quarterly cash dividend equal to an annual yield of 1.49%4.33%.

FRBFederal Reserve System policy now codified under the Dodd-Frank Act, requires bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. Section 616 of the Dodd-Frank Act codified the requirement that bank holding companies act as a source of financial strength. As a result, Webster Financial Corporation is expected to commit resources to support Webster Bank, including at times when Webster Financial Corporation may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary banks. The FederalU.S. bankruptcy code provides that, in the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

The Newcapital rules under a global regulatory framework developed by the Basel Committee on Banking Supervision (BASEL III) adopted by the Federal Reserve System, the OCC, and the FDIC generally implement the capital framework for strengthening international capital standards. The Capital Rules define the components of regulatory capital, as well as address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The Capital Rules also address asset risk weights and other matters affecting the denominator in banking institutions’ regulatory capital ratios.

Pursuant to Section 38 of the revised requirements,Federal Deposit Insurance Act, federal banking agencies are required to take prompt corrective action should an insured depository institution fail to meet certain capital adequacy standards. At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the under capitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as finalized.well capitalized, adequately capitalized, or under capitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment.

Under federal law, transactions between insured depository institutions and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act (“FRA”).(FRA) and implementing Regulation W. In a bank holding company context, at a minimum, the parent holding company of a bank, and any companies which are controlled by such parent holding company, are affiliates of the bank. Generally, sections 23A and 23B of the FRA are intended to protect insured depository institutions from losses arising from transactions with non-insured affiliates by limiting the extent to which a bank or its subsidiaries may engage in covered transactions with any one affiliate and with all affiliates of the bank in the aggregate, and requiring that such transactions be on terms consistent with safe and sound banking practices.

The Dodd-Frank Act centralized responsibility for consumer financial protection by creating the CFPB, an independent agency charged with responsibility for implementing, enforcing, and examining compliance with federal consumer financial protection laws. The Company is subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy and population. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Procedures Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement ProceduresPractices Act, various state law counterparts, and the Consumer Financial Protection Act of 2010, which constitutesis part of the Dodd-Frank Act. The Dodd-Frank Act does not prevent states from adopting stricter consumer protection standards. State regulation of financial products and establishespotential enforcement actions could also adversely affect the CFPB, as described above.Company’s business, financial condition or operations.

Webster is subject to federal lawlaws, including the Gramm-Leach-Bliley Act and certain state laws currently contain clientcontaining consumer privacy protection provisions. These provisions limit the ability of banks and other financial institutions to disclose non-publicnonpublic information about consumers to affiliated companies and non-affiliated third parties.parties and limit the reuse of certain consumer information received from non-affiliated financial institutions. These rulesprovisions require disclosurenotice of privacy policies to clientsconsumers and, in some circumstances, allow consumers to prevent disclosure of certain nonpublic personal information to affiliates or non-affiliated third parties by means of "opt out"opt-out or "opt in"opt-in authorizations. Pursuant

The FDIAFederal Deposit Insurance Act provides that, in the event of the “liquidationliquidation or other resolution”resolution of an insured depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including the parent bank holding company, with respect to any extensions of credit they have made to such insured depository institution.

The Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities, including Webster and Webster Bank, with at least $1 billion in total consolidated assets that encourage inappropriate risks by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits that could lead to material financial loss to the entity. The federal banking agencies and the SEC most recently proposed such regulations in 2016, but the regulations have not yet been finalized. If the regulations are adopted in the form initially proposed, they will restrict the manner in which executive compensation is structured.

Webster Bank has a responsibility under the Community Reinvestment Act of 1977 (“CRA”)CRA, as implemented by OCC regulations to help meet the credit needs of its communities, including low and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. In connection with its examination, thecommunity. The OCC assessesexamines Webster Bank's record of compliance with the CRA. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit discrimination in lending practices on the basis of characteristics specified in those statutes. Webster Bank's failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities and the activities of Webster.Webster Financial Corporation. Webster Bank's failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions against it by the OCC, as well as other federal regulatory agencies, including the CFPB and the Department of Justice. TheWebster Bank's latest OCC CRA rating was “satisfactory.”Satisfactory.

Under Title III of the USA PATRIOT Act, all financial institutions are required to take certain measures to identify their customers, prevent money laundering, monitor customer transactions, and report suspicious activity to U.S. law enforcement agencies. Financial institutions also are required to respond to requests for information from federal banking regulatory authoritiesagencies and law enforcement agencies. Information sharing among financial institutions for the above purposes is encouraged by an exemption granted to complying financial institutions from the privacy provisions of the GLBAGramm-Leach-Bliley Act and other privacy laws. Financial institutions that hold correspondent accounts for foreign banks or provide private banking services to foreign individuals are required to take measures to avoid dealing with certain foreign individuals or entities, including foreign banks with profiles that raise money laundering concerns, and are prohibited from dealing with foreign “shell banks”"shell banks" and persons from jurisdictions of particular concern. The primary federal banking regulatorsagencies and the Secretary of the Treasury have adopted regulations to implement several of these provisions. All financial institutions also are required to establish internal anti-money laundering programs. The effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any application submitted by the financial institution under the Bank Merger Act. Webster has in place a Bank Secrecy Act and USA PATRIOT Act compliance program and engages in very few transactions of any kind with foreign financial institutions or foreign persons.

The United States government has imposed economic sanctions that affect transactions with designated foreign countries, nationals, and others. These are typically known as the “OFAC”"OFAC" rules based on their administration by the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”).Control. The OFAC-administeredOffice of Foreign Assets Control-administered sanctions targeting countries take many different forms. Generally, they contain one or more of the following elements: i)(i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons”U.S. persons engaging in financial transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned country; and ii)(ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). Blocked assets (property and bank deposits) cannot be paid out, withdrawn, set off, or transferred in any manner without a license from OFAC.the Office of Foreign Assets Control. Failure to comply with these sanctions could have serious legal and reputational consequences.

From time to time, various legislative and regulatory initiatives are introduced in CongressFederal and state legislatures as well as bymay introduce legislation that will impact the financial services industry. In addition, federal banking agencies may introduce regulatory agencies.initiatives that are likely to impact the financial services industry, generally. Such initiatives may include proposals to expand or contract the powers of bank holding companies and/or depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities, or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. The Company cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it or any implementing regulations would have on the financial condition or results of operations of the Company. A change in statutes, regulations, or regulatory policies applicable to Webster or any of its subsidiaries could have a material effect on the business of the Company.

Webster applies an integrated, forward-looking Enterprise Risk Management ("ERM")takes a comprehensive approach to risk management with a defined enterprise risk management framework which provides a structured approach for identifying, assessing and managing risks across the Company. Company in a coordinated manner, including strategic, reputational, credit, market, liquidity, capital, and operational and compliance risks as discussed in detail in the sections below.

Webster manages and controls credit risk in its loan and investment portfolios through established underwriting practices, adherence to standards, and utilization of various portfolio and transaction monitoring tools and processes. Credit policies and underwriting guidelines provide limits on exposure and establish various other standards as deemed necessary and prudent. Additional approval requirements and reporting are implemented to ensure proper risk identification, decision rationale, risk ratings, and disclosure of policy exceptions.

Market risk refers to the risk of loss arising from adverse changes in interest rates, foreign currency exchange rates, commodity prices, and other relevant market rates and prices, such as equity prices. The risk of loss is assessed from the perspective of adverse changes in fair values, cash flows, and future earnings. Due to the nature of its operations, Webster is primarily exposed to interest rate risk. Webster's interest rate sensitivity is monitored on an ongoing basis by its Asset and Asset/Liability Committee (“ALCO”)(ALCO). ALCO'sThe primary goal of ALCO is to manage interest rate risk to maximize earnings and net economic value in changing interest rate and business environments, withinsubject to Board approved risk appetite limits approved by the Board of Directors.limits. ALCO is chaired by Webster's Corporate Treasurer and members include the CEO, CFOChief Executive Officer, Chief Financial Officer and CRO.Chief Risk Officer. ALCO activities and findings are regularly reported to the ERMC and Risk Committee andof the Board of Directors.

Liquidity risk refers to the ability of Webster Bank to meet a demand for funds by converting assets into cash or cash equivalents and by increasing liabilities at an acceptable costs.cost. Liquidity management for Webster Bank involves maintaining the ability to meet day-to-day and longer-term cash flow requirements of customers, whether they are depositors wishing to withdraw funds or borrowers requiring funds to meet their credit needs. Liquidity sourcesSources of funds include the amountdeposits, borrowings, or sales of assets such as unencumbered or “free” investment portfolio securities the Company owns.securities.

Webster aims to maintain adequate capital in both normal and stressed environments to support its business objectives and risk appetite. ALCO monitors regulatory and tangible capital levels according to regulatory requirements and management targetsoperating ranges and recommends capital conservation, generation, and/or deployment strategies. ALCO also has responsibility for the annual capital plan, targetcapital ratio range setting, contingency planning and stress testing, which are all reviewed and approved by the ERMC and Risk Committee andof the Board of Directors, at least annually.

Internal Audit provides an independent, objective assurance and objective assessment ofadvisory services by testing and evaluating the design and executionoperating effectiveness of internal controls for all major business unitsthroughout Webster. This evaluation function brings a systematic and operations throughout Webster, including ourdisciplined approach to enhancing the effectiveness of Webster's governance, risk management, systems, risk governance, and policies and procedures. Internal Audit activities are designed to provide reasonable assurance that resources are safeguarded; that significant financial, managerial and operating information is complete, accurate and reliable; and that employee actions comply with our policies and applicable laws and regulations.internal control processes.