The following discussion should be read in conjunction with the Company's consolidated financial statements, and notes thereto, for the year ended December 31, 2008, included in the 2008 Form 10-K and in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 to this report. Operating results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results for the full year ending December 31, 2009 or any future period.

Dollar amounts in tables are stated in thousands, except for per share amounts.

Forward-Looking Statements and Factors that Could Affect Future Results

Certain statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"), notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in the Company's future filings with the SEC, in press releases, and in oral and written statements made by or with the approval of the Company that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items;
(ii) statements of plans, objectives and expectations of Webster or its management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes", "anticipates", "expects", "intends", "targeted", "continue", "remain", "will", "should", "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

• Local, regional, national and international economic conditions and the impact they may have on the Company and its customers and the Company's assessment of that impact.

• Volatility and disruption in national and international financial markets.

• Government intervention in the U.S. financial system.

• Changes in the level of non-performing assets and charge-offs.

• Inflation, interest rate, securities market and monetary fluctuations.

• Acts of God or of war or terrorism.

• The timely development and acceptance of new products and services and perceived overall value of these products and services by users.

• Changes in consumer spending, borrowings and savings habits.

• Technological changes.

• The ability to increase market share and control expenses.

• Changes in the competitive environment among financial holding companies and other financial service providers.

• The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company and its subsidiaries must comply.

• The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.

• Changes in the Company's organization, compensation and benefit plans.

• The costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews.

• The Company's success at managing the risks involved in the foregoing items.

Forward-looking statements speak only as of the date on which such statements are made. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.

Critical Accounting Policies

The Company's significant accounting policies are described in Note 1 to the consolidated financial statements included in its 2008 Annual Report on Form 10-K. The preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates. Management has identified accounting for the allowance for credit losses, valuation and analysis for impairment of goodwill and other intangible assets, and the analysis of other-than-temporary impairment for its investment securities, income taxes and pension and other post retirement benefits as the Company's most critical accounting policies and estimates in that they are important to the portrayal of the Company's financial condition and results, and they require management's most subjective and complex judgment as a result of the need to make estimates about the effects of matters that are inherently uncertain. These accounting policies, including the nature of the estimates and types of assumptions used, are described throughout this Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations and Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 2008 Annual Report on Form 10-K.

RESULTS OF OPERATIONS

Summary of Performance

Webster's net loss was $19.2 million, or $0.39 per diluted common share, for the three months ended September 30, 2009, compared to a net loss of $16.5 million, or $0.42 per diluted common share, for the three months ended September 30, 2008. The net loss from continuing operations was $19.2 million, or $0.39 per diluted common share, for the three months ended September 30, 2009, compared to net loss from continuing operations of $16.0 million, or $0.41 per diluted common share for the three months ended September 30, 2008. The year-over-year increase in net loss from continuing operations is primarily attributable to a $39.5 million increase in the provision for credit losses and a $2.6 million increase in the net loss on investment securities for the three months ended September 30, 2009 compared to September 30, 2008, partially offset by a $32.2 million decrease in the loss on write-down of investments to fair value for the three months ended September 30, 2009 as compared to September 30, 2008. Net interest income, which decreased $2.5 million for the three months ended September 30, 2009 from the comparable period in the prior year, was negatively impacted by the declining interest rate environment, and the effect that declining short-term interest rates and a flattening of the yield curve had on the net interest margin, as assets reprice faster than liabilities.

For the nine months ended September 30, 2009, Webster's net loss was $61.9 million compared to a net loss of $20.7 million for the comparable period in 2008. Net loss per diluted share was $1.35 for the nine months ended September 30, 2009 compared to a net loss per diluted share of $0.51 for the comparable period in 2008. The increase in net loss per share is directly related to the calculation of earnings per share in accordance with accounting guidance provided by FASB ASC Topic 260 "Earnings Per Share" and related updates including FASB ASU No. 2009-08. The calculation of earnings per share required Webster to determine the dilutive effects of the Series A Preferred Stock tendered on June 24, 2009 and adjust earnings per share for the $58.8 million excess of the carrying amount of the preferred stock retired over the fair value of the common shares issued and cash delivered net of the $7.2 million of dividends paid. The year-over-year increase in net loss is primarily attributable to a $149.7 million increase in the provision for credit losses for the nine months ended September 30, 2009 compared to September 30, 2008, partially offset by a $24.3 million gain on the exchange of $63.9 million of Trust Preferred Securities for common stock. The year-over-year comparisons for the nine months ended September 30, 2009 as compared to the comparable period in 2008 are also impacted by the declining interest rate environment, and the effect that declining short-term interest rates and a flattening of the yield curve have had on net interest margin. Income (loss) from discontinued operations, net of taxes totaled $0.3 million for the nine months ended September 30, 2009 and $(3.1) million for the nine months ended September 30, 2008. The $3.4 million decrease in the loss from discontinued operations is due to the realization of a loss on the sale of Webster Insurance and Webster Risk Services in the September 30, 2008 period.

Significant Third Quarter Event

During the third quarter, Webster strengthened its capital position through an agreement with Warburg Pincus, the global private equity firm, pursuant to which Warburg agreed to invest $115 million in Webster, as previously disclosed. An initial amount of $40 million was invested on July 27, 2009 and the remaining $75 million was invested on October 15, 2009. This investment, coupled with the successful exchange offer for convertible preferred stock and trust preferred securities completed during the second quarter, enabled Webster to significantly increase common equity with minimal dilution to tangible book value. For more information regarding Warburg's investment in Webster and the securities purchased, see Note 12 to Webster's condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Selected financial highlights are presented in the table below.

                                                                        At or for the                                    At or for the
                                                              Three months ended September 30,                  Nine months ended September 30,
(In thousands, except per share data)                          2009                      2008                    2009                     2008

Income (Loss) and Per Share Amounts
Net interest income                                       $       126,672           $       129,181         $      364,157           $      379,723
Total non-interest income                                          44,158                    15,749                133,651                   57,847
Total non-interest expense                                        127,086                   117,315                375,179                  370,726
Loss from continuing operations, net of tax                       (19,242 )                 (16,007 )              (62,228 )                (17,596 )
Income (loss) from discontinued operations, net of
tax                                                                    -                       (518 )                  313                   (3,081 )
Net income attributable to noncontrolling interests                     8                        14                     21                        6
Net loss attributable to Webster Financial
Corporation                                                       (19,250 )                 (16,539 )              (61,936 )                (20,683 )
Net loss available to common shareholders                         (26,100 )                 (21,748 )              (30,854 )                (26,323 )

Income (loss) from continuing operations per common
share - basic                                             $         (0.39 )         $         (0.41 )       $        (0.55 )         $        (0.45 )
Net income (loss) per common share - basic                          (0.39 )                   (0.42 )                (0.54 )                  (0.51 )
Loss from continuing operations per common share -
diluted (d)                                                         (0.39 )                   (0.41 )                (1.36 )                  (0.45 )
Net loss per common share - diluted (d)                             (0.39 )                   (0.42 )                (1.35 )                  (0.51 )
Dividends declared per common share                                  0.01                      0.30                   0.03                     0.90
Book value per common share                                         21.11                     30.19                  21.11                    30.19
Tangible book value per common share                                13.05                     16.13                  13.05                    16.13
Basic shares (average)                                             66,281                    52,032                 57,125                   52,017
Diluted shares (weighted average) (c)                              66,281                    52,032                 61,100                   52,017
Dividends declared per Series A preferred share                     21.25                     22.19                  63.75                    22.19
Dividends incurred per Series B preferred share                     12.50                        -                   37.50                       -
Dividends declared per affiliate preferred share                     0.22                      0.22                   0.65                     0.65

Selected Ratios
Return on average assets (b)                                        (0.44 )%                  (0.37 )%               (0.47 )%                 (0.14 )%
Return on average shareholders' equity (b)                          (4.14 )                   (3.43 )                (4.47 )                  (1.31 )
Net interest margin                                                  3.18                      3.32                   3.07                     3.28
Efficiency ratio (a)                                                65.11                     59.60                  66.29                    63.52
Tangible capital ratio                                               7.70                      6.34                   7.70                     6.34
Tier one common equity to risk weighted assets (e)                   6.40                      6.91                   6.40                     6.91

(a) Calculated using SNL's methodology-non-interest expense (excluding foreclosed property expenses, intangible amortization, goodwill impairments and other charges) as a percentage of net interest income (FTE basis) plus non-interest income (excluding gain/loss on securities and other charges).

(b) Calculated based on income from continuing operations for all periods presented.

(c) For the three and nine months ended September 30, 2009 and 2008, respectively, the effect of stock options, restricted stock, convertible preferred stock outstanding at September 30, 2009 and the outstanding warrant to purchase common stock on the computation of diluted earnings per share was anti-dilutive. Therefore, the effect of these instruments were not included in the determination of diluted shares (average).

(d) Calculated in accordance with FASB ASC Topic 260 and related updates including FASB ASU No. 2009-08 which required the Company to determine the dilutive effects of the Series A Preferred Stock tendered on June 24, 2009 separately from the remaining shares outstanding at September 30, 2009. Accordingly, the adjustments to dilutive EPS related to the Series A Preferred Stock includes the $58.8 million excess of the carrying amount of the preferred stock retired over the fair value of the common shares issued and cash delivered, net of the $7.2 million of dividends paid. These adjustments were not incorporated into the calculation of diluted EPS for the three and six months ended June 30, 2009. Had the $58.8 million excess of the carrying amount of the preferred stock retired over the fair value of the common shares issued and cash delivered, net of the $7.2 million of dividends paid been taken into consideration diluted EPS for continuing operations would have been $(0.66) and $(0.97) for the three and six months ended June 30, 2009, respectively, a decrease from the $0.30 and $(0.10), respectively, previously reported within Webster's Form 10-Q for the three and six months ended June 30, 2009.

(e) The ratios presented are projected for the 2009 reporting periods and actual for the 2008 reporting periods.

The following summarizes the major categories of assets and liabilities together with their respective interest income or expense and the rates earned or paid by Webster:

                                                                      Three months ended September 30,
                                                            2009                                            2008
                                           Average                          Average        Average                          Average
(Dollars in thousands)                     Balance       Interest (a)       Yields         Balance       Interest (a)       Yields
Assets
Interest-earning assets:
Loans                                    $ 11,465,068   $      131,266         4.54 %    $ 12,805,398   $      175,363         5.43 %
Securities (b)                              4,303,155           55,777         5.14         2,860,309           41,661         5.62
Federal Home Loan and Federal
Reserve Bank stock                            138,070              674         1.94           132,413            1,265         3.80
Short-term investments                        272,222              187         0.27             4,193               28         2.64
Loans held for sale                            68,663              716         4.17             3,810               54         5.62

Total interest-earning assets              16,247,178          188,620         4.60        15,806,123          218,371         5.45
Noninterest-earning assets                  1,344,626                                       1,537,759

Total assets                             $ 17,591,804                                    $ 17,343,882

Liabilities and equity
Interest-bearing liabilities:
Demand deposits                          $  1,598,433   $           -            -  %    $  1,515,047   $           -            -  %
Savings, NOW & money market deposits        7,444,729           15,602         0.83         5,869,948           19,660         1.33
Certificates of deposit                     4,384,509           26,375         2.39         4,670,268          380,701         3.23

Total interest-bearing deposits            13,427,671           41,977         1.24        12,055,263          400,361         1.90

Repurchase agreements and other
short-term debt                               895,771            4,472         1.95         1,332,097            8,517         2.50
Federal Home Loan Bank advances               662,367            6,514         3.85         1,291,583           10,180         3.08
Long-term debt                                589,384            5,322         3.61           655,760            9,018         5.50

Total borrowings                            2,147,522           16,308         2.99         3,279,440           27,715         3.33

Total interest-bearing liabilities         15,575,193           58,285         1.48        15,334,703          428,076         2.21
Noninterest-bearing liabilities               146,798                                         132,799

Total liabilities                          15,721,991                                      15,467,502
Equity                                      1,869,813                                       1,876,380

Total liabilities and equity             $ 17,591,804                                    $ 17,343,882


Fully tax-equivalent net interest
income                                                         130,335                                        (209,705 )
Less: tax equivalent adjustments                                (3,663 )                                        (3,744 )

Net interest income                                     $      126,672                                  $     (213,449 )


Interest-rate spread                                                           3.12 %                                          3.24 %
Net interest margin (b)                                                        3.18 %                                          3.32 %

(a) On a fully tax-equivalent basis.

(b) For purposes of this computation, net unrealized losses on available for sale securities of $40.6 million and $104.5 million as of September 30, 2009 and 2008, respectively, are excluded from the average balance for rate calculations.

                                                                     Nine months ended September 30,
                                                           2009                                            2008
                                          Average                          Average        Average                          Average
(Dollars in thousands)                    Balance       Interest (a)       Yields         Balance       Interest (a)       Yields
Assets
Interest-earning assets:
Loans                                   $ 11,870,636   $      409,566         4.58 %    $ 12,677,899   $      542,421         5.67 %
Securities (b)                             3,975,016          161,352         5.31         2,860,501          123,394         5.62
Federal Home Loan and Federal
Reserve Bank stock                           136,940            1,970         1.92           124,922            4,305         4.60
Short-term investments                       102,421              261         0.34             4,750              106         2.93
Loans held for sale                           55,798            1,713         4.09            35,181            1,546         5.86

Total interest-earning assets             16,140,811          574,862         4.71        15,703,253          671,772         5.65
Noninterest-earning assets                 1,417,635                                       1,538,806

Total assets                            $ 17,558,446                                    $ 17,242,059


Liabilities and equity
Interest-bearing liabilities:
Demand deposits                         $  1,557,900   $           -            -  %    $  1,480,139   $           -            -  %
Savings, NOW & money market deposits       6,716,808           46,542         0.93         5,852,690           63,145         1.44
Certificates of deposit                    4,665,633           98,325         2.82         4,744,594          129,883         3.65

Total interest-bearing deposits           12,940,341          144,867         1.50        12,077,423          193,028         2.13

Repurchase agreements and other
short-term debt                            1,204,744           14,826         1.62         1,330,197           28,298         2.80
Federal Home Loan Bank advances              732,351           20,028         3.61         1,230,280           30,607         3.27
Long-term debt                               641,152           20,002         4.16           658,387           28,968         5.87

Total borrowings                           2,578,247           54,856         2.82         3,218,864           87,873         3.60

Total interest-bearing liabilities        15,518,588          199,723         1.72        15,296,287          280,901         2.44
Noninterest-bearing liabilities              172,467                                         147,586

Total liabilities                         15,691,055                                      15,443,873
Equity                                     1,867,391                                       1,798,186

Total liabilities and equity            $ 17,558,446                                    $ 17,242,059


Fully tax-equivalent net interest
income                                                        375,139                                         390,871
Less: tax equivalent adjustments                              (10,982 )                                       (11,148 )

Net interest income                                    $      364,157                                  $      379,723


Interest-rate spread                                                          2.99 %                                          3.21 %
Net interest margin (b)                                                       3.07 %                                          3.28 %

(a) On a fully tax-equivalent basis.

(b) For purposes of this computation, net unrealized losses on available for sale securities of $80.1 million and $69.5 million as of September 30, 2009 and 2008, respectively, are excluded from the average balance for rate calculations.

The following table describes the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have impacted interest income and interest expense during the periods indicated. Information is provided in each category with respect to changes attributable to changes in volume (changes in volume multiplied by prior rate), changes attributable to changes in rates (changes in rates multiplied by prior volume) and the total net change. The change attributable to the combined impact of volume and rate has been allocated proportionately to the change due to volume and the change due to rate. The table presented below is based upon reported net interest income.

                                         Three months ended September 30,                Nine months ended September 30,
                                                   2009 vs. 2008                                  2009 vs. 2008
                                            Increase (decrease) due to                     Increase (decrease) due to
(In thousands)                          Rate           Volume          Total           Rate          Volume          Total
Interest on interest-earning
assets:
Loans                                $   (26,911 )    $ (17,186 )    $ (44,097 )    $  (99,799 )    $ (33,056 )    $ (132,855 )
Loans held for sale                          (17 )          679            662            (560 )          727             167
Securities and short-term
investments                                 (726 )       14,491         13,765          (6,057 )       42,001          35,944

Total interest income                    (27,654 )       (2,016 )      (29,670 )      (106,416 )        9,672         (96,744 )

Interest on interest-bearing
liabilities:
Deposits                                 (21,685 )        5,931        (15,754 )       (60,997 )       12,836         (48,161 )
Borrowings                                (2,603 )       (8,804 )      (11,407 )       (17,209 )      (15,808 )       (33,017 )
. . .