Forward Looking Statements

This report contains forward looking statements within the meaning of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from management expectations, projections and estimates. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of Webster's loan and investment portfolios, changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting Webster's operations, markets, products, services and prices. Some of these and other factors are discussed in Webster's annual and quarterly reports previously filed with the Securities and Exchange Commission ("SEC"). Such developments, or any combination thereof, could have an adverse impact on Webster's financial position and results of operations. Except as required by law, Webster does not undertake to update any such forward looking statements.

Description of Business

Webster Financial Corporation ("Webster" or the "Company"), a bank holding company and financial holding company under the Bank Holding Company Act of 1956, as amended, was incorporated under the laws of Delaware in 1986. Webster, on a consolidated basis, at March 31, 2009 had assets of $17.3 billion and equity of $1.9 billion. Webster's principal assets are all of the outstanding capital stock of Webster Bank, National Association ("Webster Bank"). Webster, through Webster Bank and various non-banking financial services subsidiaries, delivers financial services to individuals, families and businesses throughout southern New England and into eastern New York State. Webster also offers equipment financing, commercial real estate lending, asset-based lending, health savings accounts and insurance premium financing on a regional or national basis. Webster provides business and consumer banking, mortgage lending, financial planning, trust and investment services through 181 banking offices, 492 ATMs, telephone banking and its Internet website (www.websterbank.com). Through its HSA Bank division (www.hsabank.com), Webster Bank offers health savings accounts on a nationwide basis. Webster's common stock is traded on the New York Stock Exchange under the symbol of "WBS". Webster's financial reports can be accessed through its website within 24 hours of filing with the SEC.

Critical Accounting Policies

The Company's significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in the 2008 Annual Report on Form 10-K. The preparation of 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/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 effect 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, the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 2008 Annual Report on Form 10-K.

RESULTS OF OPERATIONS

Summary

Webster's net loss was $11.1 million, or $(0.41) per diluted common share, for the three months ended March 31, 2009, compared to net income of $24.6 million, or $0.46 per diluted common share, for the three months ended March 31, 2008. The net loss from continuing operations was $11.1 million, or $(0.41) per diluted common share, for the three months ended March 31, 2009, compared to net income from continuing operations of $26.7 million, or $0.50 per diluted common share for the three months ended March 31, 2008. The year-over-year decrease in net (loss) income from continuing operations is primarily attributable to a $50.2 million increase in the provision for credit losses for the three months ended March 31, 2009 compared to March 31, 2008, partially offset by a $6.0 million gain on the extinguishment of $22.5 million of subordinate notes and related swaps and a gain on the sale of investment securities of $4.3 million at March 31, 2009. Net interest income, which decreased $6.7 million for the three months ended March 31, 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.

Selected financial highlights are presented in the table below.

                                                                    At or for the
                                                             Three months ended March 31,
(In thousands, except per share data)                         2009                  2008
Earnings (Loss) and Per Share Amounts
Net interest income                                      $      118,197        $      124,856
Total non-interest income                                        54,115                47,847
Total non-interest expense                                      118,018               115,904
(Loss) income from continuing operations, net of tax            (11,113 )              26,696
Loss from discontinued operations, net of tax                        -                 (2,124 )
Net income (loss) attributable to noncontrolling
interests                                                            13                    (9 )
Net (loss) income attributable to Webster Financial
Corporation                                                     (11,126 )              24,581

(Loss) income from continuing operations per common
share - diluted                                          $        (0.41 )      $         0.50
Net (loss) income per common share - diluted                      (0.41 )                0.46
Dividends declared per common share                                0.01                  0.30
Book value per common share                                       23.45                 32.71
Tangible book value per common share                              13.02                 18.36
Diluted shares (average) (c)                                     52,102                52,517
Dividends declared per Series A preferred share                   21.25                    -
Dividends declared per Series B preferred share                   12.50                    -
Dividends declared per affiliate preferred share                 0.8625                0.8625

Selected Ratios
Return on average assets (b)                                      (0.26 )%               0.62 %
Return on average shareholders' equity (b)                        (2.44 )                6.11
Net interest margin                                                2.99                  3.27
Efficiency ratio (a)                                              67.59                 65.21
Tangible capital ratio                                             7.75                  5.77

(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 months ended March 31, 2009, the effect of stock options, restricted stock, convertible preferred stock 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).

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 March 31,
                                                          2009                                          2008
                                          Average                         Average       Average                         Average
(In thousands)                            Balance       Interest (a)      Yields        Balance       Interest (a)      Yields
Assets
Interest-earning assets:
Loans                                   $ 12,151,016   $      140,767        4.65 %   $ 12,540,115   $      191,272        6.08 %
Securities (b)                             3,946,429           54,511        5.36        2,954,885           42,973        5.75
Short-term investments                        20,148               32        0.63            3,690               37        3.98
Loans held for sale                           20,415              164        3.22           96,372            1,400        5.81

Total interest-earning assets             16,138,008          195,474        4.82       15,595,062          235,682        6.02
Noninterest-earning assets                 1,466,046                                     1,538,898

Total assets                            $ 17,604,054                                  $ 17,133,960


Liabilities and equity
Interest-bearing liabilities:
Demand deposits                         $  1,507,206   $           -           -  %   $  1,437,553   $           -           -  %
Savings, NOW & money market deposits       5,943,285           15,711        1.07        5,796,671           24,180        1.67
Certificates of deposit                    4,838,449           37,197        3.12        4,938,280           51,062        4.15

Total interest-bearing deposits           12,288,940           52,908        1.75       12,172,504           75,242        2.49

Repurchase agreements and other
short-term debt                            1,695,580            5,800        1.37        1,359,763           11,219        3.26
Federal Home Loan Bank advances              870,368            7,054        3.24        1,039,936            9,879        3.76
Long-term debt                               681,371            7,799        4.58          658,789           10,808        6.56

Total borrowings                           3,247,319           20,653        2.54        3,058,488           31,906        4.14

Total interest-bearing liabilities        15,536,259           73,561        1.91       15,230,992          107,148        2.82
Noninterest-bearing liabilities              199,648                                       160,546
Equity                                     1,868,147                                     1,742,422

Total liabilities and equity            $ 17,604,054                                  $ 17,133,960


Fully tax-equivalent net interest
income                                                        121,913                                       128,534
Less: tax equivalent adjustments                               (3,716 )                                      (3,678 )

Net interest income                                    $      118,197                                $      124,856

Interest-rate spread                                                         2.91 %                                        3.20 %
Net interest margin (b)                                                      2.99 %                                        3.27 %

(a) On a fully tax-equivalent basis.

(b) For purposes of this computation, unrealized losses on available for sale securities of $122.0 million and $35.1 million as of March 31, 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 March 31,
                                                            2009 vs. 2008
                                                     Increase (decrease) due to
    (In thousands)                                 Rate         Volume        Total
    Interest on interest-earning assets:
    Loans                                       $  (44,619 )   $ (5,886 )   $ (50,505 )
    Loans held for sale                               (447 )       (789 )      (1,236 )
    Securities and short-term investments           (2,048 )     13,543        11,495

    Total interest income                          (47,114 )      6,868       (40,246 )

    Interest on interest-bearing liabilities:
    Deposits                                       (23,042 )        708       (22,334 )
    Borrowings                                     (13,073 )      1,820       (11,253 )

    Total interest expense                         (36,115 )      2,528       (33,587 )

    Net change in net interest income           $  (10,999 )   $  4,340     $  (6,659 )

Net Interest Income

Net interest income totaled $118.2 million for the three months ended March 31, 2009, a decrease of $6.7 million from the comparable period in the prior year, as average earning assets grew by 3.5% to $16.1 billion at March 31, 2009 from $15.6 billion at March 31, 2008, while the net interest margin declined from 2.99% for the three months ended March 31, 2009 from 3.27% for the three months ended March 31, 2008. The securities portfolio totaled $3.7 billion at March 31, 2009 compared to $3.8 billion at December 31, 2008 and $3.0 billion a year ago. The yield in the securities portfolio for the three months ended March 31, 2009 was 5.36% compared with 5.75% for the same period in 2008.

Net interest income can change significantly from period to period based on general levels of interest rates, customer prepayment patterns, the mix of interest earning assets and the mix of interest bearing and non-interest bearing deposits and borrowings. Webster manages the risk of changes in interest rates on its net interest income through an Asset/Liability Management Committee and through related interest rate risk monitoring and management policies. See "Asset/Liability Management and Market Risk" for further discussion of Webster's interest rate risk position.

The decline in yields in certain asset classes within the loan portfolio reflect the effects that the 400 basis point reductions made by the Federal Reserve Bank since March 18, 2008 have had on the floating rate home equity lines, commercial real estate ("CRE") and commercial and industrial ("C&I") loans. Approximately 70% of Webster's CRE portfolio and 65% of its C&I portfolio are floating rate assets. The decline in yields was also impacted by the increase in non-performing loans, which totaled $316.2 million at March 31, 2009 compared to $139.7 million at March 31, 2008. Webster's total nonperforming assets increased to $348.4 million at March 31, 2009 an increase of $194.4 million, compared to $154.0 million at March 31, 2008. C&I and residential development increased by $120.0 million at March 31, 2009 compared to March 31, 2008, while residential and consumer loans increased $56.4 million for the comparable periods. For the three months ended March 31, 2009, the yield on interest earning assets decreased 120 basis points, while the cost of interest-bearing liabilities declined 91 basis points, respectively. As a result, the net interest margin for the three months ended March 31, 2009 was 2.99%, a decrease of 28 basis points, from the comparable period in 2008.

Interest Income

Interest income (on a fully tax-equivalent basis) for the three months ended March 31, 2009 decreased $40.2 million, or 17.1%, from the comparable period in 2008. The decrease in short-term interest rates had an unfavorable impact on interest sensitive loans as well as lower rates on new volumes. The average balance for investment securities for the three months ended March 31, 2009 was $3.9 billion, an increase of $1.0 billion from the comparable period in 2008. The average balance for loans for the three months ended March 31, 2009 was $12.2 billion, a decrease of $0.4 billion from the comparable period in 2008.

The yield on interest-earning assets decreased 120 basis points for the three months ended March 31, 2009 from the comparable period in 2008. The decrease reflects the declining interest rate environment during these periods as well as increased non-performing loans.

The loan portfolio yield decreased 143 basis points to 4.65% for the three months ended March 31, 2009 and comprised 75.3% of average interest-earning assets compared to 80.4% of average interest-earning assets for the three months ended March 31, 2008.

Interest Expense

Interest expense on a fully tax-equivalent basis for the three months ended March 31, 2009 decreased $33.6 million, or 31.3%, from the comparable period in 2008. The decrease for the three month period ended March 31, 2009 was primarily due to declining deposit funding costs and short-term borrowing interest rates. The cost of total interest bearing liabilities was 1.91% for the three months ended March 31, 2009, a decrease of 91 basis points from 2.82% for the comparable period in 2008. Deposit costs for the three months ended March 31, 2009 decreased 74 basis points to 1.75% from 2.49% for the comparable period in 2008. Total borrowing costs for the three months ended March 31, 2009 decreased 160 basis points to 2.54% from 4.14% for the comparable period in 2008.

Provision for Credit Losses

The provision for credit losses was $66.0 million for the three months ended March 31, 2009, an increase of $50.2 million compared to $15.8 million for the three months ended March 31, 2008. The increase in the provision for the three months ended March 31, 2009 reflects increased levels of nonperforming loans and charge-offs as well as additional provision for the liquidating portfolio. Of the $66.0 million in provision for credit losses for the three months ended March 31, 2009, $54.1 million was for the continuing portfolio. Net charge-offs for Webster's continuing portfolio for the three months ended March 31, 2009 were $18.7 million compared to $15.8 million for the comparable period in 2008. The annualized net charge-off ratio for the continuing portfolio for the three months ended March 31, 2009 was 0.63% compared to 0.52% for the comparable period in 2008. The provision for loan losses for the liquidating portfolio for the three months ended March 31, 2009 was $11.9 million. The annualized net charge-off ratio for the liquidating portfolio for the three months ended March 31, 2009 was 15.62% compared to 7.89% for the comparable period in 2008. Net charge-offs within Webster's liquidating portfolio were $11.4 million for the three months ended March 31, 2009 compared to $7.8 million for the comparable period in 2008.

Management performs a quarterly review of the loan portfolio and unfunded commitments to determine the adequacy of the allowance for credit losses and the amount of provision for credit losses required. Several factors influence the amount of the provision, including loan growth and changes in portfolio mix as well as net charge-offs, and the economic environment.

The allowance for credit losses, which is comprised of the allowance for loan losses and the reserve for unfunded commitments, totaled $281.7 million, or 2.33% of total loans at March 31, 2009, and $245.8 million, or 2.02% of total loans at December 31, 2008. The allowance for credit losses related to the continuing portfolio was $237.4 million, or 2.01% of loans within the continuing portfolio at March 31, 2009 and $201.9 million, or 1.70% of loans within the continuing portfolio at December 31, 2008. The allowance for credit losses related to the liquidating portfolio was $44.4 million, or 15.84% of loans within the liquidating portfolio at March 31, 2009 and $43.9 million, or 14.52% of loans within the liquidating portfolio at December 31, 2008.

For further information, see "Loan Portfolio Review and Allowance for Credit Losses Methodology" included in the "Financial Condition - Asset Quality" section of Management's Discussion and Analysis of Financial Condition and Results of Operations on page 43-48 of this report.

Non-Interest Income

The following summarizes the major categories of non-interest income for the
three months ended March 31, 2009 and 2008.



                                                             Three months ended March 31,
(In thousands)                                                 2009               2008
Non-Interest Income:
Deposit service fees                                      $        27,959    $        28,433
Loan related fees                                                   6,482              6,858
Wealth and investment services                                      5,750              6,956
Mortgage banking activities                                           606                740
Increase in cash surrender value of life insurance                  2,592              2,581
Net gain on investment securities                                   4,457                124
Loss on write-down of investments to fair value                        -              (1,254 )
Gain on early extinguishment of subordinated notes and
related swaps                                                       5,993                 -
Visa share redemption                                                  -               1,625
Other income                                                          276              1,784

Total non-interest income                                 $        54,115    $        47,847

Total non-interest income was $54.1 million for the three months ended March 31, 2009, an increase of $6.3 million from the comparable period in 2008. The increase for the three months ended March 31, 2009 is primarily attributable to the $6.0 million gain on the early extinguishment of a portion of the subordinated notes and the related swap.

Deposit service fees totaled $28.0 million for the three months ended March 31, 2009 down from $28.4 million in the year-ago period due to reduced customer overdraft fees and ATM usage. Loan-related fees were $6.5 million for the three months ended March 31, 2009, down $0.4 million when compared to results from the year ago period. Wealth and investment services was $5.8 million for the three months ended March 31, 2009, down $1.2 million when compared to results from the year ago period, primarily from lower valuation on assets under management given market declines year over year. Net gains from the sale of securities were approximately $4.5 million for the quarter, an increase of $4.4 million when compared to a gain of $0.1 million recorded a year ago. Other non-interest income was $0.3 million for the quarter compared to $1.8 million a year ago.

Non-Interest Expenses

The following summarizes the major categories of non-interest expenses for the
three months ended March 31, 2009 and 2008.



                                                    Three months ended March 31,
  (In thousands)                                      2009               2008
  Non-Interest Expenses:
  Compensation and benefits                      $        56,469    $        63,443
  Occupancy                                               14,295             13,682
  Furniture and equipment                                 15,140             15,160
  Intangible assets amortization                           1,464              1,548
  Marketing                                                3,106              3,643
  Outside services                                         3,784              4,153
  FDIC deposit insurance assessment                        4,590                354
  Severance and other costs                                  240               (650 )
  REO and foreclosed write-downs                           3,450                233
  Foreclosed and repossessed property expenses             1,179                280
  Other expenses                                          14,301             14,058

  Total non-interest expenses                    $       118,018    $       115,904

Total non-interest expenses were $118.0 million for the three months ended March 31, 2009 compared to $115.9 million for the comparable period in 2008. REO and foreclosed write-downs were $3.5 million for the three months ended March 31, 2009 compared to $0.2 million for the comparable period in 2008. Foreclosed and repossessed property expenses were $1.2 million for the three months ended March 31, 2009 compared to $0.3 million for the comparable period in 2008. The $3.3 million increase in write-downs and $0.9 million increase in foreclosed and repossessed property expenses is due to the increase in foreclosure activity as well as declining asset values that resulted in the write-down to realizable value while increased expenses are associated with higher levels of repossessed assets. FDIC deposit insurance assessment was $4.6 million for the three months ended March 31, 2009 compared to $0.4 million for the comparable period in 2008 due to the utilization of FDIC premium credits during fiscal 2008. The increase in

non-interest expenses related to REO and foreclosed assets and FDIC deposit insurance assessments were offset by the $7.0 million decrease in compensation and benefits for the three months ended March 31, 2009 when compared to the same . . .