Investment Securities

A summary of the amortized cost, carrying value, and fair value of Webster’s investment securities is presented below:



	At December 31, 2012
			Recognized in OCI							Not Recognized in OCI
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Carrying value		Gross unrealized gains		Gross unrealized losses			Fair value
Available for sale:
U.S. Treasury Bills	$	200	$	—	$	—		$	200	$	—	$	—		$	200
Agency collateralized mortgage obligations (“CMOs”)	1,284,126		25,972		(92		)	1,310,006		—		—			1,310,006
Agency mortgage-backed securities (“MBS”)	1,121,941		21,437		(1,098		)	1,142,280		—		—			1,142,280
Commercial mortgage-backed securities (“CMBS”)	359,438		42,086		(3,493		)	398,031		—		—			398,031
Collateralized loan obligations ("CLOs")	88,765		—		(225		)	88,540		—		—			88,540
Pooled trust preferred securities ⁽¹⁾	46,018		—		(19,811		)	26,207		—		—			26,207
Single issuer trust preferred securities	51,181		—		(6,766		)	44,415		—		—			44,415
Corporate debt	111,281		6,918		—			118,199		—		—			118,199
Equity securities - financial institutions ⁽²⁾	6,232		2,054		(4		)	8,282		—		—			8,282
Total available for sale	$	3,069,182	$	98,467	$	(31,489	)	$	3,136,160	$	—	$	—		$	3,136,160
Held-to-maturity:
Agency CMOs	500,369		—		—			500,369		16,643		(8		)	517,004
Agency MBS	1,833,677		—		—			1,833,677		88,082		(474		)	1,921,285
Municipal bonds and notes	559,131		—		—			559,131		34,366		(110		)	593,387
CMBS	199,810		—		—			199,810		18,324		—			218,134
Private Label MBS	14,542		—		—			14,542		366		—			14,908
Total held-to-maturity	$	3,107,529	$	—	$	—		$	3,107,529	$	157,781	$	(592	)	$	3,264,718

Total investment securities	$	6,176,711	$	98,467	$	(31,489	)	$	6,243,689	$	157,781	$	(592	)	$	6,400,878


(1)	Amortized cost is net of $10.5 million of credit related other-than-temporary impairment at December 31, 2012.


(2)	Amortized cost is net of $21.3 million of other-than-temporary impairment at December 31, 2012.



	At December 31, 2011
			Recognized in OCI							Not Recognized in OCI
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Carrying value		Gross unrealized gains		Gross unrealized losses			Fair value
Available for sale:
U.S. Treasury Bills	$	200	$	—	$	—		$	200	$	—	$	—		$	200
Agency CMOs	1,916,372		27,211		(3,341		)	1,940,242		—		—			1,940,242
Agency MBS	502,389		25,079		(158		)	527,310		—		—			527,310
CMBS	319,200		22,395		(11,242		)	330,353		—		—			330,353
Pooled trust preferred securities ⁽¹⁾	52,606		—		(23,608		)	28,998		—		—			28,998
Single issuer trust preferred securities	51,027		—		(12,813		)	38,214		—		—			38,214
Equity securities - financial institutions ⁽²⁾	7,669		1,802		(24		)	9,447		—		—			9,447
Total available for sale	$	2,849,463	$	76,487	$	(51,186	)	$	2,874,764	$	—	$	—		$	2,874,764
Held-to-maturity:
Agency CMOs	733,889		—		—			733,889		20,555		—			754,444
Agency MBS	1,411,008		—		—			1,411,008		98,449		—			1,509,457
Municipal bonds and notes	646,358		—		—			646,358		30,960		(174		)	677,144
CMBS	158,451		—		—			158,451		6,588		—			165,039
Private Label MBS	24,021		—		—			24,021		441		—			24,462
Total held-to-maturity	$	2,973,727	$	—	$	—		$	2,973,727	$	156,993	$	(174	)	$	3,130,546

Total investment securities	$	5,823,190	$	76,487	$	(51,186	)	$	5,848,491	$	156,993	$	(174	)	$	6,005,310


(1)	Amortized cost is net of $10.5 million of credit related other-than-temporary impairment at December 31, 2011.


(2)	Amortized cost is net of $21.6 million of other-than-temporary impairment at December 31, 2011.

The amortized cost and fair value of debt securities at December 31, 2012, by contractual maturity, are set forth below:



	Available for Sale				Held to Maturity
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	9,742	$	8,652	$	9,190	$	9,194
Due after one year through five years	101,803		107,629		13,560		14,251
Due after five through ten years	29,782		30,872		202,299		214,557
Due after ten years	2,921,623		2,980,725		2,882,480		3,026,716
Total debt securities	$	3,062,950	$	3,127,878	$	3,107,529	$	3,264,718

For the purposes of the maturity schedule, mortgage-backed securities and collateralized loan obligations, which are not due at a single maturity date, have been allocated over maturity groupings based on the expected maturity of the underlying collateral. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. At December 31, 2012, the Company had $645.0 million carrying value of callable securities in its investment portfolio.

Securities with a carrying value totaling $2.5 billion at December 31, 2012 and $2.4 billion at December 31, 2011 were pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law. At December 31, 2012 and December 31, 2011, the Company had no investments in obligations of individual states, counties, or municipalities which exceed 10% of consolidated shareholders’ equity.

The following tables provide information on the gross unrealized losses and fair value of the Company’s investment securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment security category and length of time that individual investment securities have been in a continuous unrealized loss position:



	At December 31, 2012
	Less Than Twelve Months					Twelve Months or Longer					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			# of Holdings	Fair Value		Unrealized Losses
Available for Sale:
Agency CMOs	$	69,936	$	(92	)	$	—	$	—		4	$	69,936	$	(92	)
Agency MBS	275,818		(1,098		)	—		—			28	275,818		(1,098		)
CMBS	14,947		(17		)	20,909		(3,476		)	2	35,856		(3,493		)
CLOs	44,775		(225		)	—		—			2	44,775		(225		)
Pooled trust preferred securities	—		—			26,207		(19,811		)	8	26,207		(19,811		)
Single issuer trust preferred securities	—		—			44,415		(6,766		)	9	44,415		(6,766		)
Equity securities-financial institutions	144		(4		)	—		—			1	144		(4		)
Total available for sale	405,620		(1,436		)	91,531		(30,053		)	54	497,151		(31,489		)
Held-to-maturity:
Agency CMOs	18,741		(8		)	—		—			1	18,741		(8		)
Agency MBS	161,057		(474		)	—		—			12	161,057		(474		)
Municipal bonds and notes	5,990		(51		)	2,858		(59		)	11	8,848		(110		)
Total held-to-maturity	185,788		(533		)	2,858		(59		)	24	188,646		(592		)

Total investment securities	$	591,408	$	(1,969	)	$	94,389	$	(30,112	)	78	$	685,797	$	(32,081	)



	At December 31, 2011
	Less Than Twelve Months					Twelve Months or Longer					Total
(Dollars in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			# of Holdings	Fair Value		Unrealized Losses
Available for Sale:
Agency CMOs	$	405,318	$	(3,341	)	$	—	$	—		11	$	405,318	$	(3,341	)
Agency MBS	90,418		(158		)	—		—			3	90,418		(158		)
CMBS	73,190		(1,924		)	14,957		(9,318		)	5	88,147		(11,242		)
Pooled trust preferred securities	6,526		(8,178		)	22,472		(15,430		)	8	28,998		(23,608		)
Single issuer trust preferred securities	6,711		(1,521		)	31,503		(11,292		)	9	38,214		(12,813		)
Equity securities-financial institutions	124		(24		)	—		—			1	124		(24		)
Total available for sale	582,287		(15,146		)	68,932		(36,040		)	37	651,219		(51,186		)
Held-to-maturity:
Municipal bonds and notes	5,405		(66		)	6,117		(108		)	21	11,522		(174		)
Total held-to-maturity	5,405		(66		)	6,117		(108		)	21	11,522		(174		)

Total investment securities	$	587,692	$	(15,212	)	$	75,049	$	(36,148	)	58	$	662,741	$	(51,360	)

The following discussion summarizes, by investment security type, the basis for evaluating if the applicable investment securities within the Company’s available for sale portfolio were other-than-temporarily impaired at December 31, 2012. Unless otherwise noted for an investment security type, management does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell these securities before the recovery of its amortized cost.

Agency CMOs – There were $92 thousand in unrealized losses in the Company’s investment in agency CMOs at December 31, 2012 compared to $3.3 million at December 31, 2011. The improvement in unrealized losses at December 31, 2012 was the result of lower overall interest rates and tighter market spreads during the year ended December 31, 2012, as compared to the year ended December 31, 2011. The contractual cash flows for these investments are performing as expected. As such, the Company does not consider these securities to be other-than-temporarily impaired at December 31, 2012.

Agency mortgage-backed securities – There were $1.1 million in unrealized losses in the Company’s investment in residential mortgage-backed securities issued by government agencies at December 31, 2012, compared to $158 thousand in unrealized losses at December 31, 2011. The increase was primarily due to interest rate changes combined with new purchases made during the year. The contractual cash flows for these investments are performing as expected. The Company does not consider these securities to be other-than-temporarily impaired at December 31, 2012.

Commercial mortgage-backed securities – The unrealized losses on the Company’s investment in commercial mortgage-backed securities issued by entities other than government agencies decreased to $3.5 million at December 31, 2012, from $11.2 million at December 31, 2011. This decrease in unrealized loss is primarily the result of recent tightening in credit spreads during the year ended December 31, 2012. Internal and external metrics are considered when evaluating potential OTTI. Internal stress tests are performed on individual bonds to monitor potential loss in either base or high stress scenarios. The high stress scenario resulted in a 28.1% loss for one bond, assuming a severe recession with a peak unemployment rate of 14.4%. In addition, market analytics are performed to validate internal results. Contractual cash flows for the bonds continue to perform as expected. The Company does not consider these securities to be other-than-temporarily impaired at December 31, 2012.

Collateralized loan obligations – There were $225 thousand in unrealized losses in the Company’s investment in collateralized loan obligations at December 31, 2012. This unrealized loss represents the bid/ask spread on the securities. These securities have been highly stress tested and this unrealized loss does not signify any change in perceived credit quality. There were no investments in collateralized loan obligations at December 31, 2011.

Trust Preferred Securities - Pooled Issuers – At December 31, 2012, the fair value of the pooled trust preferred securities was $26.2 million, a decrease of $2.8 million from the fair value of $29.0 million at December 31, 2011. The fair value decreased slightly as a result of principal payments received during the year, which is offset by improvements in credit spreads. The unrealized losses in the Company's investment in the pooled trust preferred securities were $19.8 million at December 31, 2012, a decrease of $3.8 million from a balance of $23.6 million at December 31, 2011. The decrease in unrealized losses was attributable to improvements in credit spreads.

For the year ended December 31, 2012, the Company recognized no credit or non credit related OTTI for these securities. The pooled trust preferred portfolio consists of collateralized debt obligations (“CDOs”) containing predominantly bank and insurance company collateral that are investment grade and below investment grade. An internal model is used to value the securities due to the continued inactive market and illiquid nature of pooled trust preferred securities in the entire capital structure. The Company employs an internal CDO model for projection of future cash flows and discounting those cash flows to a net present value. Each underlying issuer in the pools is rated internally using the latest financial data on each institution, and future deferrals, defaults and losses are then estimated on the basis of continued stress in the financial markets. Further, all current and projected deferrals are not assumed to cure, and all current and projected defaults are assumed to have no recovery value. The resulting net cash flows are then discounted at current market levels for similar types of products that are actively trading. To determine potential OTTI due to credit losses, management compares the amortized cost to the present value of expected cash flows adjusted for deferrals and defaults using the discount margin at the time of purchase. Other factors considered include an analysis of excess subordination and temporary interest shortfall coverage. Based on the valuation analysis as of December 31, 2012, management expects to fully recover the remaining amortized cost of those securities not deemed to be other than temporarily impaired. However, additional interest deferrals, defaults, or ratings changes could result in future OTTI charges.

The following table summarizes pertinent information that was considered by management in evaluating Trust Preferred Securities – Pooled Issuers for OTTI in the current reporting period:



Trust Preferred Securities - Pooled Issuers
Deal Name	Class	Amortized Cost ⁽¹⁾		Gross Unrealized Losses			Fair Value		Lowest Credit Ratings as of December 31, 2012 ⁽²⁾	Total Other- Than-Temporary Impairment thru December 31, 2012			% of Performing Bank/ Insurance Issuers		Deferrals/ Defaults (As a % of Current Collateral)
(Dollars in thousands)
Security H	B	$	3,486	$	(1,649	)	$	1,837	B	$	(352	)	92.0	%	7.2	%
Security I	B	4,467		(2,110		)	2,357		CCC	(365		)	93.8	%	8.0	%
Security J	B	5,303		(2,719		)	2,584		CCC	(806		)	92.0	%	9.9	%
Security K	A	7,400		(3,474		)	3,926		CCC	(2,040		)	68.6	%	34.3	%
Security L	B	8,725		(4,240		)	4,485		CCC	(867		)	95.8	%	6.4	%
Security M	A	7,191		(4,141		)	3,050		D	(4,926		)	57.3	%	38.5	%
Security N	A	9,446		(1,478		)	7,968		A	(1,104		)	92.0	%	9.9	%
		$	46,018	$	(19,811	)	$	26,207		$	(10,460	)

(1)For the securities previously deemed impaired, the amortized cost is reflective of previous OTTI recognized in earnings.

(2)The Company utilized credit ratings provided by Moody’s, S&P and Fitch in its evaluation of issuers.

Trust Preferred Securities - Single Issuers – At December 31, 2012, the fair value of the single issuer trust preferred portfolio was $44.4 million, an increase of $6.2 million from the fair value of $38.2 million at December 31, 2011, attributable to improvements in credit and liquidity spreads. The gross unrealized loss of $6.8 million at December 31, 2012 is primarily attributable to changes in interest rates and wider credit spreads over the holding period of these securities. The single issuer portfolio consists of five investments issued by three large capitalization money center financial institutions, which continue to service the debt and showed significantly improved capital levels in recent years and remain well above current regulatory capital standards. Based on the review of the qualitative and quantitative factors presented above, the Company does not consider these securities to be other-than-temporarily impaired at December 31, 2012.

The following table summarizes pertinent information that was considered by management in evaluating the Trust Preferred Securities - Single Issuers portfolio for OTTI in the current reporting period:



Trust Preferred Securities - Single Issuers
Deal Name	Amortized Cost		Gross Unrealized Losses			Fair Value		Lowest Credit Ratings as of December 31, 2012 ⁽¹⁾
(Dollars in thousands)
Security B	$	6,893	$	(1,174	)	$	5,719	BB
Security C	8,673		(974		)	7,699		BBB
Security D	9,542		(1,090		)	8,452		B
Security E	11,766		(1,379		)	10,387		BBB
Security F	14,307		(2,149		)	12,158		BBB
	$	51,181	$	(6,766	)	$	44,415

(1)The Company utilized credit ratings provided by Moody’s, S&P and Fitch in its evaluation of issuers.

Corporate debt securities – There were no unrealized losses in the Company’s investment in senior corporate debt securities at December 31, 2012. There were no investments in senior corporate debt securities at December 31, 2011.

Equity securities – The unrealized losses on the Company’s investment in equity securities were $4 thousand at December 31, 2012, compared to $24 thousand at December 31, 2011. This portfolio consists primarily of investments in the common stock of small capitalization financial institutions based in New England. When estimating the recovery period for equity securities in an unrealized loss position, management utilizes analyst forecasts, earnings assumptions and other company-specific financial performance metrics. In addition, this assessment incorporates general market data, industry and sector cycles and related trends to determine a reasonable recovery period. The Company evaluated the near-term prospects of the issuers in relation to the severity and duration of the impairment. The Company does not consider these securities to be other-than-temporarily impaired at December 31, 2012.

The following discussion summarizes, by investment security type, the basis for the conclusion that the applicable investment securities within the Company’s held to maturity portfolio were not other-than-temporarily impaired at December 31, 2012. Unless otherwise noted, under an investment security type, management does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell these securities before the recovery of its amortized cost. There were no significant credit downgrades on held to maturity securities during the year ended December 31, 2012.

Agency CMOs – There were $8 thousand in unrealized losses on the Company’s investment in agency CMOs at December 31, 2012, compared to no losses at December 31, 2011. The contractual cash flows for this investment are performing as expected. The Company does not consider these securities to be other-than-temporarily impaired at December 31, 2012.

Agency mortgage-backed securities – There were unrealized losses on the Company’s investment in residential mortgage-backed securities issued by government agencies of $474 thousand at December 31, 2012, compared to no losses at December 31, 2011. The unrealized losses are a result of widening mortgage-treasury spreads from time of purchase. The contractual cash flows for these investments are performing as expected. The Company does not consider these securities to be other-than-temporarily impaired at December 31, 2012.

Municipal bonds and notes – There were unrealized losses of $110 thousand on the Company’s investment in municipal bonds and notes at December 31, 2012 compared to $174 thousand at December 31, 2011. This decrease is primarily the result of wider credit spreads in 2012 compared to 2011. The municipal portfolio is primarily comprised of bank qualified bonds, over 94.1% with credit ratings of A or better. In addition, the portfolio is comprised of 85.2% General Obligation bonds, 14.4% Revenue bonds and 0.4% other bonds. The Company does not consider these securities to be other-than-temporarily impaired at December 31, 2012.

CMBS and private label MBS – There were no unrealized losses on the Company’s investment in commercial and residential mortgage-backed securities issued by entities other than government agencies at December 31, 2012 and December 31, 2011. These securities carry AAA ratings and are currently performing as expected. The Company does not consider these securities to be other-than-temporarily impaired at December 31, 2012.

The following is a roll forward of the amount of credit related OTTI recognized in earnings for the years ended December 31:



(In thousands)	2012		2011			2010
Balance of credit related OTTI, beginning of year	$	10,460	$	26,320		$	43,492
Reduction for payment of deferred interest	—		(16		)	—
Reduction for securities sold	—		(15,844		)	(22,943		)
Additions for credit related OTTI not previously recognized	—		—			5,771
Balance of credit related OTTI, end of year	$	10,460	$	10,460		$	26,320

There were no additions to credit related OTTI for the years ended December 31, 2012 or 2011. There was a reduction in outstanding credit-related OTTI due to the sale of two securities during the year ended December 31, 2011. To the extent that changes in interest rates, credit movements and other factors that influence the fair value of investments occur, the Company may be required to record impairment charges for other-than-temporary impairment in future periods.

The following table summarizes the proceeds from the sale of securities for the periods ended December 31, 2012, 2011 and 2010:



	Years ended December 31,
(In thousands)	2012		2011		2010
Available for sale:
Agency CMOs	$	44,850	$	94,335	$	116,140
Agency MBS	86,015		180,613		266,154
Agency notes	—		—		30,027
CMBS	16,284		—		—
Pooled trust preferred securities	—		1,456		4,153
Equity securities	1,073		2,353		—
Total available for sale	$	148,222	$	278,757	$	416,474

The following table summarizes the impact of realized gains and losses from the sale of securities and the impact of the recognition of other-than-temporary impairments for the periods presented.



	Years ended December 31,
	2012								2011										2010
(In thousands)	Gains		Losses		OTTI Charges		Net		Gains		Losses			OTTI Charges		Net			Gains		Losses			OTTI Charges			Net
Available for sale:
Agency CMOs	$	897	$	—	$	—	$	897	$	1,959	$	—		$	—	$	1,959		$	1,980	$	—		$	—		$	1,980
Agency MBS	806		—		—		806		4,833		—			—		4,833			8,342		—			—			8,342
Agency notes	—		—		—		—		—		—			—		—			18		—			—			18
CMBS	1,235		—		—		1,235		—		—			—		—			—		—			—			—
Pooled trust preferred securities	—		—		—		—		—		(3,343		)	—		(3,343		)	341		(933		)	(5,771		)	(6,363		)
Equity securities	409		—		—		409		374		—			—		374			—		—			(67		)	(67		)
Total available for sale	$	3,347	$	—	$	—	$	3,347	$	7,166	$	(3,343	)	$	—	$	3,823		$	10,681	$	(933	)	$	(5,838	)	$	3,910

Investments in Private Equity Funds - In addition to investment securities, the Company has investments in private equity funds. These investments, which totaled $11.6 million at December 31, 2012 and $13.1 million at December 31, 2011, are included in other assets in the accompanying Consolidated Balance Sheets. The Company recognized a $720 thousand loss, and a $1.6 million and $0.7 million gain, respectively, net of OTTI charges on these investments, for the years ended December 31, 2012, 2011 and 2010. Included in the loss of $720 thousand for the year ended December 31, 2012, is an OTTI charge of $665 thousand on one of the funds. These amounts are included in other non-interest income in the accompanying Consolidated Statements of Income.

Trading Securities - The Company sold 594,107 shares at $12 per share of its investment in Higher One Holdings, Inc., as part of that company’s initial public offering on June 29, 2010. A gain of $6.4 million was recorded in other non-interest income in the accompanying Consolidated Statements of Income for the year ended December 31, 2010. For the years ended December 31, 2011 and 2010, the Company recorded a loss of $1.8 million and a gain of $12.0 million, respectively, for the mark to market value of these trading securities. There was no activity in trading securities for the year ended December 31, 2012.