WEBSTER FINANCIAL CORPWBS
WEBSTER FINANCIAL CORP Income Taxes Disclosure
Income Taxes
Income tax expense reflects the following expense (benefit) components:
| Years ended December 31, | |||||||||||||||||
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 154,714 | $ | 171,913 | $ | 219,548 | |||||||||||
| State and local | 55,045 | 58,204 | 50,750 | ||||||||||||||
| Total current | 209,759 | 230,117 | 270,298 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 45,537 | (14,464) | (43,615) | ||||||||||||||
| State and local | 2,051 | 32,647 | (10,019) | ||||||||||||||
| Total deferred | 47,588 | 18,183 | (53,634) | ||||||||||||||
| Total federal | 200,251 | 157,449 | 175,933 | ||||||||||||||
| Total state and local | 57,096 | 90,851 | 40,731 | ||||||||||||||
| Income tax expense | $ | 257,347 | $ | 248,300 | $ | 216,664 | |||||||||||
The deferred federal expense in 2025 reflects the effects of accelerated deductions the Company plans to take on its 2025 federal tax return as afforded by the One Big Beautiful Bill Act. Deferred SALT expense was not impacted by those deductions to any significant degree, while deferred SALT expense in 2025 does include a $5.5 million benefit from operating loss carryforwards. The Company’s total deferred tax expense in 2024 included $29.4 million related to an increase in its valuation allowance for its SALT DTAs attributable to operating loss carryforwards.
The following table reflects a reconciliation of reported income tax expense to the amount that would result from applying the federal statutory rate of 21.0%:
| Years ended December 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||
| (Dollars in thousands) | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||
| Income tax expense at federal statutory rate | $ | 264,631 | 21.0 | % | $ | 213,572 | 21.0 | % | $ | 227,746 | 21.0 | % | ||||||||||||||
| Reconciliation to reported income tax expense: | ||||||||||||||||||||||||||
SALT expense, net of federal (1) | 45,906 | 3.6 | 64,798 | 6.4 | 28,603 | 2.7 | ||||||||||||||||||||
| Tax credits: | ||||||||||||||||||||||||||
| LIHTCs and related benefits, net of amortization | (16,804) | (1.3) | (17,376) | (1.7) | (7,070) | (0.7) | ||||||||||||||||||||
| Other | (597) | (0.1) | (1,237) | (0.1) | (824) | (0.1) | ||||||||||||||||||||
| Changes in valuation allowances | (1,378) | (0.1) | 1,378 | 0.1 | (368) | — | ||||||||||||||||||||
| Nontaxable or Nondeductible items: | ||||||||||||||||||||||||||
| Tax-exempt interest, net | (44,369) | (3.5) | (31,500) | (3.1) | (44,473) | (4.1) | ||||||||||||||||||||
| Non-deductible FDIC deposit insurance premiums | 12,878 | 1.0 | 12,305 | 1.2 | 10,693 | 1.0 | ||||||||||||||||||||
| Other | (2,952) | (0.2) | (4,156) | (0.4) | (938) | (0.1) | ||||||||||||||||||||
Changes in unrecognized tax benefits (2) | (894) | (0.1) | 3,635 | 0.4 | 4,466 | 0.4 | ||||||||||||||||||||
| Other, net | 926 | 0.1 | 6,881 | 0.6 | (1,171) | (0.1) | ||||||||||||||||||||
| Income tax expense and effective tax rate | $ | 257,347 | 20.4 | % | $ | 248,300 | 24.4 | % | $ | 216,664 | 20.0 | % | ||||||||||||||
(1)The majority (greater than 50 percent) of the tax effect in this category is comprised of New York State, along with Massachusetts in 2025, Connecticut in 2024, and New York City in 2023.
(2)Changes in unrecognized tax benefits include interest and penalties.
The following table reflects the significant components of DTAs, net:
| December 31, | |||||||||||
| (In thousands) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| ACL on loans and leases | $ | 195,913 | $ | 187,348 | |||||||
| Net operating loss and credit carry forwards | 73,180 | 74,363 | |||||||||
| Compensation and employee benefit plans | 58,649 | 50,880 | |||||||||
| Lease liabilities under operating leases | 54,989 | 52,397 | |||||||||
| Net unrealized loss on available-for-sale securities | 124,044 | 193,309 | |||||||||
| Other | 36,155 | 71,008 | |||||||||
| Gross deferred tax assets | 542,930 | 629,305 | |||||||||
| Valuation allowance | (56,816) | (64,422) | |||||||||
| Total deferred tax assets, net of valuation allowance | $ | 486,114 | $ | 564,883 | |||||||
| Deferred tax liabilities: | |||||||||||
| ROU assets under operating leases | $ | 47,918 | $ | 44,434 | |||||||
| Equipment financing leases | 84,337 | 54,990 | |||||||||
| Goodwill and other intangible assets | 96,029 | 102,042 | |||||||||
| Purchase accounting and fair value adjustments | 16,170 | 10,359 | |||||||||
| Other | 45,920 | 36,202 | |||||||||
| Gross deferred tax liabilities | 290,374 | 248,027 | |||||||||
| Deferred tax assets, net | $ | 195,740 | $ | 316,856 | |||||||
The Company’s net DTAs decreased by $121.1 million during 2025, reflecting primarily the $47.6 million deferred tax expense and a $76.5 million expense allocated directly to AOCL, partially offset by a $3.8 million net DTA recognized as part of purchase accounting adjustments related to the acquisition of SecureSave.
The valuation allowance of $56.8 million at December 31, 2025, is attributable to SALT net operating loss and credit carryforwards, as compared to $64.4 million at December 31, 2024, which was comprised of $62.7 million attributable to SALT net operating loss and credit carryforwards and $1.7 million of capital loss carryforwards. The $7.6 million decrease in the valuation allowance during 2025 primarily reflects a $7.3 million expiration of net operating loss carryforwards for which a valuation allowance existed at December 31, 2024.
SALT net operating loss carryforwards of approximately $1.1 billion and SALT credit carryforwards of $1.1 million at December 31, 2025, have varying carryforward periods. The vast majority of the SALT net operating loss and credit carryforwards are scheduled to expire during the years 2026 through 2032. Federal net operating loss carryforwards of approximately $31.3 million and federal credit carryforwards of $0.5 million at December 31, 2025, related to the Bend and SecureSave acquisitions are subject to annual limitations on utilization, with the net operating losses able to be carried forward indefinitely and the credits scheduled to expire in varying amounts between 2038 and 2045. The valuation allowance reflects approximately $1.0 billion of those SALT net operating loss carryforwards and $0.5 million of the SALT credit carryforwards that are estimated to expire unused.
Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize its total DTAs, net of the valuation allowance. Although taxable income in prior years is no longer able to be included as a source of taxable income, due to the general repeal of the carryback of net operating losses under the Tax Cuts and Jobs Act of 2017, significant positive evidence remains in support of management’s conclusion regarding the realizability of the Company’s DTAs, including projected future reversals of existing taxable temporary differences and book-taxable income levels in recent years and projected in future years. There can, however, be no assurance that any specific level of future income will be generated or that the Company’s DTAs will ultimately be realized.
DTLs of $63.2 million at both December 31, 2025, and 2024, have not been recognized for certain thrift bad-debt reserves, established before 1988, that would become taxable upon the occurrence of certain events: distributions by the Bank in excess of certain earnings and profits; the redemption of the Bank’s stock; or liquidation. The Company does not expect any of those events to occur.
The following table reflects a reconciliation of the beginning and ending balances of UTBs:
| Years ended December 31, | |||||||||||||||||
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Beginning balance | $ | 13,766 | $ | 13,836 | $ | 9,875 | |||||||||||
| Additions as a result of tax positions taken during the current year | 305 | 493 | 359 | ||||||||||||||
| Additions as a result of tax positions taken during prior years | 3,430 | 7,447 | 4,255 | ||||||||||||||
| Reductions as a result of tax positions taken during prior years | (3,626) | (5,651) | — | ||||||||||||||
| Reductions relating to settlements with taxing authorities | (2,553) | (1,997) | — | ||||||||||||||
| Reductions as a result of lapse of statute of limitation periods | (894) | (362) | (653) | ||||||||||||||
| Ending balance | $ | 10,428 | $ | 13,766 | $ | 13,836 | |||||||||||
At December 31, 2025, 2024, and 2023, there were $8.9 million, $11.6 million, and $12.4 million, respectively, of UTBs that if recognized would affect the effective tax rate.
The Company recognizes interest and penalties related to UTBs, where applicable, in income tax expense. The Company recognized a benefit of $1.6 million during the year ended December 31, 2025, and expenses of $3.1 million, and $1.8 million during the years ended December 31, 2024, and 2023, respectively. At December 31, 2025, and 2024, the Company had accrued interest and penalties related to UTBs of $5.3 million and $6.9 million, respectively.
The Company’s federal tax returns for years subsequent to 2021 remain open to examination, except for the carryback of a Sterling 2019 net operating loss under the CARES Act in 2020 to tax years 2014 and 2016, which is currently under audit by the Internal Revenue Service. The Company's tax returns filed in its other principal tax jurisdictions of Connecticut, New York State, New York City, Massachusetts and New Jersey, are either under or remain open to examination for varying years subsequent to 2016, 2018, or 2021.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Mar 3, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Mar 10, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Mar 1, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Feb 29, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.