Investment Securities

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



	At June 30, 2013
			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”)	988,928		15,696		(727		)	1,003,897		—		—			1,003,897
Agency mortgage-backed securities (“MBS”)	1,362,955		11,549		(36,312		)	1,338,192		—		—			1,338,192
Commercial mortgage-backed securities (“CMBS”)	411,544		29,489		(897		)	440,136		—		—			440,136
Collateralized loan obligations ("CLOs")	277,657		825		(474		)	278,008		—		—			278,008
Pooled trust preferred securities ⁽¹⁾	44,025		—		(13,810		)	30,215		—		—			30,215
Single issuer trust preferred securities	51,267		—		(6,392		)	44,875		—		—			44,875
Corporate debt securities	110,118		2,699		(146		)	112,671		—		—			112,671
Equity securities - financial institutions ⁽²⁾	6,307		2,859		—			9,166		—		—			9,166
Total available for sale	$	3,253,001	$	63,117	$	(58,758	)	$	3,257,360	$	—	$	—		$	3,257,360
Held-to-maturity:
Agency CMOs	401,617		—		—			401,617		12,112		(801		)	412,928
Agency MBS	1,984,849		—		—			1,984,849		49,697		(37,413		)	1,997,133
Municipal bonds and notes	486,862		—		—			486,862		17,165		(362		)	503,665
CMBS	245,475		—		—			245,475		8,789		(5,167		)	249,097
Private Label MBS	11,061		—		—			11,061		264		—			11,325
Total held-to-maturity	$	3,129,864	$	—	$	—		$	3,129,864	$	88,027	$	(43,743	)	$	3,174,148

Total investment securities	$	6,382,865	$	63,117	$	(58,758	)	$	6,387,224	$	88,027	$	(43,743	)	$	6,431,508


(1)	Amortized cost is net of $10.5 million of credit related other-than-temporary impairment at June 30, 2013.


(2)	Amortized cost is net of $21.3 million of other-than-temporary impairment at June 30, 2013.



	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 CMOs	1,284,126		25,972		(92		)	1,310,006		—		—			1,310,006
Agency MBS	1,121,941		21,437		(1,098		)	1,142,280		—		—			1,142,280
CMBS	359,438		42,086		(3,493		)	398,031		—		—			398,031
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 securities	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.

The amortized cost and fair value of debt securities at June 30, 2013, 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	$	200	$	200	$	90	$	93
Due after one year through five years	104,048		106,689		61,934		65,296
Due after five through ten years	127,779		128,197		128,176		133,913
Due after ten years	3,014,667		3,013,108		2,939,664		2,974,846
Total debt securities	$	3,246,694	$	3,248,194	$	3,129,864	$	3,174,148

For the maturity schedule above, mortgage-backed securities and collateralized loan obligations, which are not due at a single maturity date, have been categorized based on the maturity date of the underlying collateral. Actual principal cash flows may differ from this maturity date presentation because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. At June 30, 2013, the Company had $779.3 million carrying value of callable securities in its investment portfolio. The Company considers these factors in the evaluation of its effective duration and interest rate risk profile.

Securities with a carrying value totaling $2.6 billion at June 30, 2013 and $2.5 billion at December 31, 2012 were pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law. At June 30, 2013 and December 31, 2012, 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 June 30, 2013
	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	$	128,352	$	(520	)	$	11,192	$	(207	)	8	$	139,544	$	(727	)
Agency MBS	982,732		(36,261		)	3,065		(51		)	88	985,797		(36,312		)
CMBS	82,528		(897		)	—		—			9	82,528		(897		)
CLOs	125,206		(474		)	—		—			9	125,206		(474		)
Pooled trust preferred securities	—		—			30,215		(13,810		)	8	30,215		(13,810		)
Single issuer trust preferred securities	4,054		(91		)	40,821		(6,301		)	9	44,875		(6,392		)
Corporate debt	23,981		(146		)	—		—			1	23,981		(146		)
Total available for sale in an unrealized loss position	$	1,346,853	$	(38,389	)	$	85,293	$	(20,369	)	132	$	1,432,146	$	(58,758	)
Held-to-maturity:
Agency CMOs	18,657		(801		)	—		—			1	18,657		(801		)
Agency MBS	1,035,839		(37,413		)	—		—			64	1,035,839		(37,413		)
Municipal bonds and notes	18,263		(324		)	2,166		(38		)	25	20,429		(362		)
CMBS	83,221		(5,167		)	—		—			9	83,221		(5,167		)
Total held-to-maturity in an unrealized loss position	$	1,155,980	$	(43,705	)	$	2,166	$	(38	)	99	$	1,158,146	$	(43,743	)

Total investment securities in an unrealized loss position	$	2,502,833	$	(82,094	)	$	87,459	$	(20,407	)	231	$	2,590,292	$	(102,501	)



	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 in an unrealized loss position	$	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 in an unrealized loss position	$	185,788	$	(533	)	$	2,858	$	(59	)	24	$	188,646	$	(592	)

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

There were no additions to credit related OTTI for the three and six months ended June 30, 2013 or 2012. 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 OTTI in future periods.

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 June 30, 2013. 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 collateralized mortgage obligations (CMOs) – There were $727 thousand in unrealized losses in the Company’s investment in agency CMOs at June 30, 2013 compared to $92 thousand at December 31, 2012. The unrealized loss is attributed to certain securities that have exhibited higher short-term prepayment speeds than initially projected at purchase. The contractual cash flows for these investments are performing as expected and there has been no change in the underlying credit quality. As such, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2013.

Agency mortgage-backed securities (MBS) – There were $36.3 million in unrealized losses in the Company’s investment in residential mortgage-backed securities issued by government agencies at June 30, 2013, compared to $1.1 million at December 31, 2012. The increase in unrealized losses is due to the impact of higher interest rates on low coupon holdings in mortgage-backed securities which resulted in a decrease in price during the current quarter. 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 June 30, 2013.

Commercial mortgage-backed securities (CMBS) – The unrealized losses on the Company’s investment in commercial mortgage-backed securities issued by entities other than government agencies decreased to $897 thousand at June 30, 2013, from $3.5 million at December 31, 2012. This decrease in unrealized loss is primarily the result of selling a $25 million position in a bond at a gain during the quarter. As of June 30, 2013 the unrealized loss is comprised of nine positions with small unrealized losses as a result of widening credit spreads and rising interest rates. Internal and external metrics are considered when evaluating potential OTTI on credit sensitive instruments. Internal stress tests are performed on individual bonds to monitor potential loss in either base or high stress scenarios. 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 June 30, 2013.

Collateralized loan obligations (CLO) – There were $474 thousand in unrealized losses in the Company’s investment in collateralized loan obligations at June 30, 2013, compared to $225 thousand at December 31, 2012. The increase in unrealized losses is due to bid/ask spreads in this market. These securities have been stress tested and this unrealized loss does not signify any change in perceived credit quality. The Company does not consider these securities to be other-than-temporarily impaired at June 30, 2013.

Pooled trust preferred 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. At June 30, 2013, the fair value of the pooled trust preferred securities was $30.2 million, an increase of $4.0 million from $26.2 million at December 31, 2012. The increase in fair value results from a decrease in unrealized losses somewhat offset by principal payments received on one security. The unrealized losses in the Company's investment in pooled trust preferred securities were $13.8 million at June 30, 2013, a decrease of $6.0 million from $19.8 million at December 31, 2012. The decrease in unrealized losses was attributable to a tightening in credit spreads (12-month average used to discount cash flows), higher projected LIBOR rates and improved collateral performance. For the six months ended June 30, 2013, the Company recognized no other-than-temporary impairment ("OTTI") for these securities. An internal model is used to value the pooled trust preferred securities as similar rated holdings continue to reflect an inactive market. 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 with future deferrals, defaults and losses 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 June 30, 2013, 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 the Pooled Trust Preferred Securities portfolio for OTTI in the current reporting period:



Deal Name	Class	Amortized Cost ⁽¹⁾		Gross Unrealized Losses			Fair Value		Lowest Credit Ratings as of June 30, 2013 ⁽²⁾	Total OTTI thru June 30, 2013			% of Performing Bank/ Insurance Issuers		Deferrals/ Defaults (As a % of Current Collateral)
(Dollars in thousands)
Security H	B	$	3,487	$	(1,178	)	$	2,309	B	$	(352	)	91.7	%	7.5	%
Security I	B	4,468		(1,520		)	2,948		CCC	(365		)	87.5	%	17.2	%
Security J	B	5,315		(2,027		)	3,288		CCC	(806		)	91.7	%	10.4	%
Security K	A	7,421		(2,447		)	4,974		CCC	(2,040		)	69.1	%	33.5	%
Security L	B	8,726		(3,061		)	5,665		CCC	(867		)	91.3	%	13.2	%
Security M	A	7,139		(3,045		)	4,094		D	(4,926		)	60.7	%	34.6	%
Security N	A	7,469		(532		)	6,937		A	(1,104		)	94.3	%	10.4	%
Pooled trust preferred securities		$	44,025	$	(13,810	)	$	30,215		$	(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.

Single issuer trust preferred securities - At June 30, 2013, the fair value of the single issuer trust preferred portfolio was $44.9 million, an increase of $0.5 million from the fair value of $44.4 million at December 31, 2012, attributable to improvements in credit and liquidity spreads. The gross unrealized loss of $6.4 million at June 30, 2013 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 June 30, 2013.

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



Deal Name	Amortized Cost		Gross Unrealized Losses			Fair Value		Lowest Credit Ratings as of June 30, 2013 ⁽¹⁾
(Dollars in thousands)
Security B	$	6,912	$	(1,024	)	$	5,888	BB
Security C	8,694		(1,094		)	7,600		BBB
Security D	9,546		(1,146		)	8,400		B
Security E	11,791		(964		)	10,827		BBB
Security F	14,324		(2,164		)	12,160		BBB
Single issuer trust preferred securities	$	51,267	$	(6,392	)	$	44,875

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

Corporate debt securities – There were unrealized losses of $146 thousand on the Company’s investment in senior corporate debt securities at June 30, 2013 compared to no unrealized losses at December 31, 2012. This is primarily attributable to a rise in the government treasuries which these types of securities use as a benchmark. The unrealized loss is for one position, which the company does not consider to be other-than-temporarily impaired at June 30, 2013.

Equity securities – There were no unrealized losses on the Company’s investment in equity securities at June 30, 2013, compared to $4 thousand at December 31, 2012. 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 June 30, 2013.

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 June 30, 2013. 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 six months ended June 30, 2013.

Agency CMOs – There were unrealized losses of $801 thousand on the Company’s investment in agency CMOs at June 30, 2013, compared to $8 thousand at December 31, 2012. This is due to one security with a lower coupon which has declined in price due to rising interest rates and lower coupons falling out of favor with many investors. 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 June 30, 2013.

Agency mortgage-backed securities – There were unrealized losses on the Company’s investment in residential mortgage-backed securities issued by government agencies of $37.4 million at June 30, 2013, compared to $474 thousand at December 31, 2012. The increase was primarily due to the impact of higher interest rates on lower coupon mortgages. 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 June 30, 2013.

Municipal bonds and notes – There were unrealized losses of $362 thousand on the Company’s investment in municipal bonds and notes at June 30, 2013 compared to $110 thousand at December 31, 2012. This increase is primarily the result of both wider credit spreads as well as higher benchmark interest rates. The municipal portfolio is primarily comprised of bank qualified bonds, over 95.6% with credit ratings of A or better. These ratings do not consider prefunded municipal holdings to be rated AA. If this were the case, the percentage of holdings rated A or better would be 97.3%. In addition, the portfolio is comprised of 84.8% general obligation bonds, 14.8% revenue bonds and 0.4% other bonds. The Company does not consider these securities to be other-than-temporarily impaired at June 30, 2013.

CMBS – There were unrealized losses of $5.2 million on the Company’s investment in commercial mortgage-backed securities issued by entities other than government agencies at June 30, 2013 compared to no unrealized losses at December 31, 2012. As of June 30, 2013, the unrealized loss is comprised of nine positions that have unrealized losses as a result of widening credit spreads and rising interest rates. These securities are currently performing as expected. The Company does not consider these securities to be other-than-temporarily impaired at June 30, 2013.

Private Label MBS - There were no unrealized losses on the Company's investment in residential mortgage-backed securities issued by entities other than government agencies at June 30, 2013 or December 31, 2012. The Company does not consider these securities to be other-then-temporarily impaired at June 30, 2013.

The following table summarizes the proceeds from the sale of available for sale securities:



	Three months ended June 30,				Six months ended June 30,
(In thousands)	2013		2012		2013		2012
Available for sale:
Agency CMOs	$	—	$	28,498	$	—	$	28,498
Agency MBS	—		—		11,771		—
CMBS	24,750		16,284		24,750		16,284
Equity securities	—		1,073		—		1,073
Proceeds from sales of available for sale securities	$	24,750	$	45,855	$	36,521	$	45,855

There were no realized losses or OTTI recognized from the sale of available for sale securities for the three and six months ended June 30, 2013 and 2012. The following table summarizes realized gains recognized from the sale of available for sale securities:



	Three months ended June 30,				Six months ended June 30,
(In thousands)	2013		2012		2013		2012
Available for sale:
Agency CMOs	$	—	$	893	$	—	$	893
Agency MBS	—		—		106		—
CMBS	333		1,235		333		1,235
Equity securities	—		409		—		409
Net gain on the sale of available for sale securities	$	333	$	2,537	$	439	$	2,537

Alternative Investments - In addition to investment securities, the Company has investments in certain non-public funds, which include private equity funds, SBIC equity funds and preferred share ownership in other equity ventures. These alternative investments, which totaled $12.6 million at June 30, 2013 and $12.1 million at December 31, 2012, are included in other assets in the accompanying Condensed Consolidated Balance Sheets. The majority are held at cost, while some are carried at net asset value, which due to the illiquidity of these funds are classified in Level 3 of the fair value hierarchy. See a further discussion of fair value in Note 14 - Fair Value Measurements. The Company recognized losses of $20 thousand and $284 thousand for the three and six months ended June 30, 2013, respectively, and a gain of $503 thousand and a loss of $257 thousand for the three and six months ended June 30, 2012, respectively. These amounts are included in other non-interest income in the accompanying Condensed Consolidated Statements of Income.