Investment Securities

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



	At September 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”)	868,288		18,537		(1,349		)	885,476		—		—			885,476
Agency mortgage-backed securities (“MBS”)	1,318,550		9,120		(34,416		)	1,293,254		—		—			1,293,254
Agency commercial mortgage-backed securities (“ACMBS”)	19,988		96		—			20,084		—		—			20,084
Commercial mortgage-backed securities (“CMBS”)	437,616		29,367		(1,032		)	465,951		—		—			465,951
Collateralized loan obligations ("CLOs")	333,023		637		(1,126		)	332,534		—		—			332,534
Pooled trust preferred securities ⁽¹⁾	36,581		—		(6,617		)	29,964		—		—			29,964
Single issuer trust preferred securities	51,311		—		(8,009		)	43,302		—		—			43,302
Corporate debt securities	109,529		4,089		—			113,618		—		—			113,618
Equity securities - financial institutions ⁽²⁾	6,307		3,082		—			9,389		—		—			9,389
Total available for sale	$	3,181,393	$	64,928	$	(52,549	)	$	3,193,772	$	—	$	—		$	3,193,772
Held-to-maturity:
Agency CMOs	368,980		—		—			368,980		11,590		(492		)	380,078
Agency MBS	2,095,513		—		—			2,095,513		48,495		(35,832		)	2,108,176
Municipal bonds and notes	466,084		—		—			466,084		14,135		(743		)	479,476
CMBS	265,727		—		—			265,727		9,272		(4,028		)	270,971
Private Label MBS	9,695		—		—			9,695		224		—			9,919
Total held-to-maturity	$	3,205,999	$	—	$	—		$	3,205,999	$	83,716	$	(41,095	)	$	3,248,620

Total investment securities	$	6,387,392	$	64,928	$	(52,549	)	$	6,399,771	$	83,716	$	(41,095	)	$	6,442,392


(1)	Amortized cost is net of $9.4 million of credit related other-than-temporary impairment at September 30, 2013.


(2)	Amortized cost is net of $21.3 million of other-than-temporary impairment at September 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 September 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	$	91
Due after one year through five years	102,717		106,597		66,262		69,780
Due after five through ten years	191,973		192,790		138,276		144,351
Due after ten years	2,880,196		2,884,796		3,001,371		3,034,398
Total debt securities	$	3,175,086	$	3,184,383	$	3,205,999	$	3,248,620

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 prepay obligations with or without prepayment penalties. At September 30, 2013, the Company had $849.7 million carrying value of callable securities in its CMBS, CLO and municipal bond portfolios. The Company considers these factors in the evaluation of its effective duration and interest rate risk profile.

Securities with a carrying value totaling $2.9 billion at September 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 September 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 September 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	$	90,774	$	(1,255	)	$	9,935	$	(94	)	6	$	100,709	$	(1,349	)
Agency MBS	880,443		(29,177		)	106,834		(5,239		)	92	987,277		(34,416		)
CMBS	51,274		(1,032		)	—		—			6	51,274		(1,032		)
CLOs	217,355		(1,126		)	—		—			14	217,355		(1,126		)
Pooled trust preferred securities	—		—			29,964		(6,617		)	6	29,964		(6,617		)
Single issuer trust preferred securities	3,900		(252		)	39,402		(7,757		)	9	43,302		(8,009		)
Total available for sale in an unrealized loss position	$	1,243,746	$	(32,842	)	$	186,135	$	(19,707	)	133	$	1,429,881	$	(52,549	)
Held-to-maturity:
Agency CMOs	29,770		(492		)	—		—			2	29,770		(492		)
Agency MBS	1,008,677		(34,002		)	41,673		(1,830		)	72	1,050,350		(35,832		)
Municipal bonds and notes	33,263		(707		)	2,166		(36		)	38	35,429		(743		)
CMBS	77,145		(4,028		)	—		—			8	77,145		(4,028		)
Total held-to-maturity in an unrealized loss position	$	1,148,855	$	(39,229	)	$	43,839	$	(1,866	)	120	$	1,192,694	$	(41,095	)

Total investment securities in an unrealized loss position	$	2,392,601	$	(72,071	)	$	229,974	$	(21,573	)	253	$	2,622,575	$	(93,644	)



	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 nine months ended September 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 September 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 $1.3 million in unrealized losses in the Company’s investment in agency CMOs at September 30, 2013 compared to $92 thousand at December 31, 2012. The unrealized loss is attributed to an increase in market rates which resulted in lower prices in CMOs. 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 September 30, 2013.

Agency mortgage-backed securities (MBS) – There were $34.4 million in unrealized losses in the Company’s investment in residential mortgage-backed securities issued by government agencies at September 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 mortgage-backed securities which resulted in a decrease in price. 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 September 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 $1.0 million at September 30, 2013, from $3.5 million at December 31, 2012. As of September 30, 2013, the unrealized loss is comprised of six 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 September 30, 2013.

Collateralized loan obligations (CLO) – There were $1.1 million in unrealized losses in the Company’s investment in collateralized loan obligations at September 30, 2013, compared to $225 thousand at December 31, 2012. The increase in unrealized losses is due to wider 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 September 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 currently non-investment grade. At September 30, 2013, the fair value of the pooled trust preferred securities was $30.0 million, an increase of $3.8 million from $26.2 million at December 31, 2012. The unrealized losses in the Company's investment in pooled trust preferred securities were $6.6 million at September 30, 2013, a decrease of $13.2 million from $19.8 million at December 31, 2012. The decrease in unrealized losses was attributable to a tightening in credit spreads (6-month average used to discount cash flows), higher projected LIBOR rates and improved collateral performance. For the nine months ended September 30, 2013, the Company recognized no other-than-temporary impairment 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, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2013.

The following table summarizes information that was also considered by management in its overall evaluation of 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 September 30, 2013 ⁽²⁾	Total OTTI through September 30, 2013			% of Performing Bank/ Insurance Issuers		Deferrals/ Defaults (As a % of Current Collateral)
(Dollars in thousands)
Security H	B	$	3,487	$	(533	)	$	2,954	B	$	(352	)	91.7	%	8.0	%
Security I	B	4,468		(716		)	3,752		CCC	(365		)	87.5	%	17.2	%
Security J	B	5,321		(1,067		)	4,254		CCC	(806		)	91.7	%	10.4	%
Security K	A	7,432		(1,107		)	6,325		CCC	(2,040		)	69.1	%	33.5	%
Security L	B	8,728		(1,449		)	7,279		CCC	(867		)	91.3	%	13.2	%
Security M	A	7,145		(1,745		)	5,400		D	(4,926		)	60.7	%	34.6	%
Pooled trust preferred securities		$	36,581	$	(6,617	)	$	29,964		$	(9,356	)

(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 September 30, 2013, the fair value of the single issuer trust preferred portfolio was $43.3 million, a decrease of $1.1 million from the fair value of $44.4 million at December 31, 2012. The unrealized losses in the Company's investment in single issuer trust preferred securities were $8.0 million at September 30, 2013, an increase of $1.2 million from $6.8 million at December 31, 2012. The single issuer portfolio consists of five investments issued by three large capitalized money center financial institutions, which continue to service the debt and have shown 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 September 30, 2013.

The following table summarizes the lowest credit rating 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 September 30, 2013 ⁽¹⁾
(Dollars in thousands)
Security B	$	6,922	$	(922	)	$	6,000	BB
Security C	8,705		(1,280		)	7,425		BBB
Security D	9,547		(1,847		)	7,700		B
Security E	11,804		(1,387		)	10,417		BBB
Security F	14,333		(2,573		)	11,760		BBB
Single issuer trust preferred securities	$	51,311	$	(8,009	)	$	43,302

(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 on the Company’s investment in corporate debt securities at September 30, 2013 or December 31, 2012.

Equity securities - financial institutions – There were no unrealized losses on the Company’s investment in equity securities at September 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 September 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 September 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 nine months ended September 30, 2013.

Agency CMOs – There were unrealized losses of $492 thousand on the Company’s investment in agency CMOs at September 30, 2013, compared to $8 thousand at December 31, 2012. This is due to an increase in market rates which resulted in lower prices. 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 September 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 $35.8 million at September 30, 2013, compared to $0.5 million 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 September 30, 2013.

Municipal bonds and notes – There were unrealized losses of $743 thousand on the Company’s investment in municipal bonds and notes at September 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 93.9% 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 95.8%. In addition, the portfolio is comprised of 85.0% general obligation bonds, 14.5% revenue bonds and 0.5% other bonds. The Company does not consider these securities to be other-than-temporarily impaired at September 30, 2013.

CMBS – There were unrealized losses of $4.0 million on the Company’s investment in commercial mortgage-backed securities issued by entities other than government agencies at September 30, 2013 compared to no unrealized losses at December 31, 2012. As of September 30, 2013, the unrealized loss is comprised of eight 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 September 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 September 30, 2013 or December 31, 2012. The Company does not consider these securities to be other-than-temporarily impaired at September 30, 2013.

The following table summarizes the proceeds and realized gains recognized from the sale of available for sale securities:



	Three months ended September 30,								Nine months ended September 30,
	2013				2012				2013				2012
(In thousands)	Proceeds		Gains		Proceeds		Gains		Proceeds		Gains		Proceeds		Gains
Available for sale:
Agency CMOs	$	—	$	—	$	16,353	$	4	$	—	$	—	$	44,851	$	897
Agency MBS	—		—		86,015		806		11,771		106		86,015		806
CMBS	—		—		—		—		24,750		333		16,284		1,235
Pooled trust preferred securities	7,740		269		—		—		7,740		269		—		—
Equity securities - financial institutions	—		—		—		—		—		—		1,073		409
Available for sale securities	$	7,740	$	269	$	102,368	$	810	$	44,261	$	708	$	148,223	$	3,347

There were no realized losses or OTTI recognized from the sale of available for sale securities for the periods presented above.

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 $19.0 million at September 30, 2013 and $19.5 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 $70 thousand and $354 thousand for the three and nine months ended September 30, 2013, respectively, and losses of $518 thousand and $775 thousand for the three and nine months ended September 30, 2012, respectively. These amounts are included in other non-interest income in the accompanying Condensed Consolidated Statements of Income.