Loans and Leases

Recorded Investment in Loans and Leases. The following tables summarize the recorded investment in loans and leases by portfolio segment:



	At December 31, 2013
(In thousands)	Residential		Consumer		Commercial		Commercial Real Estate ⁽¹⁾		Equipment Financing		Total ⁽²⁾
Recorded Investment:
Individually evaluated for impairment	$	142,871	$	52,179	$	52,199	$	105,046	$	210	$	352,505
Collectively evaluated for impairment	3,228,688		2,492,353		3,241,045		2,961,378		460,240		12,383,704
Recorded investment in loans and leases	3,371,559		2,544,532		3,293,244		3,066,424		460,450		12,736,209
Less: Accrued interest	10,134		7,844		10,393		8,062		—		36,433
Loans and leases	$	3,361,425	$	2,536,688	$	3,282,851	$	3,058,362	$	460,450	$	12,699,776



	At December 31, 2012
(In thousands)	Residential		Consumer		Commercial		Commercial Real Estate ⁽¹⁾		Equipment Financing		Total ⁽²⁾
Recorded Investment:
Individually evaluated for impairment	$	146,944	$	54,793	$	69,426	$	154,978	$	1,980	$	428,121
Collectively evaluated for impairment	3,155,051		2,584,169		2,843,760		2,635,624		417,331		11,635,935
Recorded investment in loans and leases	3,301,995		2,638,962		2,913,186		2,790,602		419,311		12,064,056
Less: Accrued interest	10,271		8,095		9,453		7,541		—		35,360
Loans and leases	$	3,291,724	$	2,630,867	$	2,903,733	$	2,783,061	$	419,311	$	12,028,696


(1)	Includes certain loans individually evaluated for impairment, under the Company's loan policy, that were deemed not to be impaired at both December 31, 2013 and December 31, 2012.


(2)	Loans and leases include net deferred fees and unamortized premiums of $13.3 million and $12.7 million at December 31, 2013 and December 31, 2012, respectively.

At December 31, 2013, the Company had pledged $5.1 billion of eligible loan collateral to support available borrowing capacity at the Federal Home Loan Bank of Boston ("FHLB") and the Federal Reserve Bank of Boston.

Loans and Leases Portfolio Aging. The following tables summarize the aging of the recorded investment in loans and leases by portfolio class:



	At December 31, 2013
(In thousands)	30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		> 90 Days Past Due and Accruing		Non-accrual		Total Past Due and Non-accrual		Current		Loans and Leases
Residential:
1-4 family	$	11,721	$	6,476	$	—	$	81,133	$	99,330	$	3,226,077	$	3,325,407
Construction	—		363		—		387		750		45,402		46,152
Consumer:
Home equity	13,892		4,696		—		45,517		64,105		2,312,874		2,376,979
Liquidating-home equity	1,440		424		—		6,271		8,135		98,079		106,214
Other consumer	462		193		—		140		795		60,543		61,338
Commercial:
Commercial non-mortgage	3,208		984		4,305		10,946		19,443		2,712,870		2,732,313
Asset-based	—		—		—		—		—		560,931		560,931
Commercial real estate:
Commercial real estate	4,387		587		235		13,456		18,665		2,842,637		2,861,302
Commercial construction	—		—		—		49		49		183,313		183,362
Residential development	—		—		—		4,188		4,188		17,573		21,761
Equipment financing	299		63		—		1,141		1,503		458,947		460,450
Total	$	35,409	$	13,786	$	4,540	$	163,228	$	216,963	$	12,519,246	$	12,736,209



	At December 31, 2012
(In thousands)	30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		> 90 Days Past Due and Accruing		Non-accrual		Total Past Due and Non-accrual		Current		Loans and Leases
Residential:
1-4 family	$	16,955	$	8,250	$	—	$	94,853	$	120,058	$	3,142,220	$	3,262,278
Construction	—		360		—		823		1,183		38,535		39,718
Consumer:
Home equity	17,745		6,993		—		49,516		74,254		2,396,944		2,471,198
Liquidating-home equity	2,063		1,626		—		8,200		11,889		111,760		123,649
Other consumer	338		195		—		135		668		43,446		44,114
Commercial:
Commercial non-mortgage	2,248		552		347		17,547		20,694		2,386,775		2,407,469
Asset-based	—		—		—		—		—		505,717		505,717
Commercial real estate:
Commercial real estate	1,081		13,784		910		15,658		31,433		2,617,213		2,648,646
Commercial construction	—		—		—		49		49		114,097		114,146
Residential development	—		—		—		5,044		5,044		22,766		27,810
Equipment financing	1,593		333		—		3,325		5,251		414,060		419,311
Total	$	42,023	$	32,093	$	1,257	$	195,150	$	270,523	$	11,793,533	$	12,064,056

Interest on non-accrual loans and leases that would have been recorded as additional interest income for the years ended December 31, 2013, 2012, and 2011, had the loans and leases been current in accordance with their original terms, totaled $11.4 million, $12.2 million, and $13.8 million, respectively.

Allowance for Loan and Lease Losses. The following tables summarize the ALLL by portfolio segment:



	At or for the year ended December 31, 2013
(In thousands)	Residential			Consumer			Commercial			Commercial Real Estate			Equipment Financing			Unallocated			Total
Allowance for loan and lease losses:
Balance, beginning of period	$	29,474		$	54,254		$	46,566		$	30,834		$	4,001		$	12,000		$	177,129
Provision (benefit) charged to expense	1,296			8,149			15,143			12,826			(2,855		)	(1,059		)	33,500
Losses charged off	(11,592		)	(29,037		)	(19,126		)	(15,425		)	(279		)	—			(75,459		)
Recoveries	1,402			6,185			5,123			1,648			3,045			—			17,403
Balance, end of period	$	20,580		$	39,551		$	47,706		$	29,883		$	3,912		$	10,941		$	152,573
Individually evaluated for impairment	$	10,535		$	4,595		$	1,878		$	3,445		$	—		$	—		$	20,453
Collectively evaluated for impairment	$	10,045		$	34,956		$	45,828		$	26,438		$	3,912		$	10,941		$	132,120



	At or for the year ended December 31, 2012
(In thousands)	Residential			Consumer			Commercial			Commercial Real Estate			Equipment Financing			Unallocated			Total
Allowance for loan and lease losses:
Balance, beginning of period	$	34,565		$	67,785		$	60,681		$	45,013		$	8,943		$	16,500		$	233,487
Provision (benefit) charged to expense	7,033			23,349			14,861			(6,495		)	(12,748		)	(4,500		)	21,500
Losses charged off	(12,927		)	(43,920		)	(35,793		)	(9,894		)	(1,668		)	—			(104,202		)
Recoveries	803			7,040			6,817			2,210			9,474			—			26,344
Balance, end of period	$	29,474		$	54,254		$	46,566		$	30,834		$	4,001		$	12,000		$	177,129
Individually evaluated for impairment	$	14,731		$	3,611		$	6,423		$	2,683		$	1		$	—		$	27,449
Collectively evaluated for impairment	$	14,743		$	50,643		$	40,143		$	28,151		$	4,000		$	12,000		$	149,680



	At or for the year ended December 31, 2011
(In thousands)	Residential			Consumer			Commercial			Commercial Real Estate			Equipment Financing			Unallocated			Total
Allowance for loan and lease losses:
Balance, beginning of period	$	30,792		$	95,071		$	74,470		$	77,695		$	21,637		$	22,000		$	321,665
Provision (benefit) charged to expense	14,364			20,262			20,868			(10,505		)	(16,989		)	(5,500		)	22,500
Losses charged off	(11,524		)	(52,997		)	(39,933		)	(22,721		)	(2,154		)	—			(129,329		)
Recoveries	933			5,449			5,276			544			6,449			—			18,651
Balance, end of period	$	34,565		$	67,785		$	60,681		$	45,013		$	8,943		$	16,500		$	233,487
Individually evaluated for impairment	$	19,367		$	5,167		$	12,996		$	9,071		$	4		$	—		$	46,605
Collectively evaluated for impairment	$	15,198		$	62,618		$	47,685		$	35,942		$	8,939		$	16,500		$	186,882

Impaired Loans and Leases. The following tables summarize impaired loans and leases by portfolio class:



	At December 31, 2013
(In thousands)	Unpaid Principal Balance		Total Recorded Investment		Recorded Investment No Allowance		Recorded Investment With Allowance		Related Valuation Allowance
Residential:
1-4 family	$	157,915	$	142,869	$	23,987	$	118,882	$	10,534
Construction	446		2		1		1		—
Consumer:
Home equity	54,991		45,577		23,622		21,955		3,926
Liquidating - home equity	8,895		6,602		3,701		2,901		669
Commercial:
Commercial non-mortgage	59,279		52,199		23,138		29,061		1,878
Commercial real estate:
Commercial real estate	95,013		90,976		42,774		48,202		3,444
Commercial construction	—		—		—		—		—
Residential development	11,725		10,625		10,625		—		—
Equipment financing	249		210		210		—		—
Totals:
Residential	158,361		142,871		23,988		118,883		10,534
Consumer	63,886		52,179		27,323		24,856		4,595
Commercial	59,279		52,199		23,138		29,061		1,878
Commercial real estate	106,738		101,601		53,399		48,202		3,444
Equipment financing	249		210		210		—		—
Total	$	388,513	$	349,060	$	128,058	$	221,002	$	20,451



	At December 31, 2012
(In thousands)	Unpaid Principal Balance		Total Recorded Investment		Recorded Investment No Allowance		Recorded Investment With Allowance		Related Valuation Allowance
Residential:
1-4 family	$	160,490	$	146,683	$	24,267	$	122,416	$	14,726
Construction	446		261		156		105		5
Consumer:
Home equity	56,815		47,755		23,967		23,788		2,960
Liquidating - home equity	11,788		7,038		3,663		3,375		651
Commercial:
Commercial non-mortgage	90,627		69,426		21,942		47,484		6,423
Commercial real estate:
Commercial real estate	123,861		121,193		65,212		55,981		2,572
Commercial construction	7,177		7,185		7,185		—		—
Residential development	13,444		12,771		5,029		7,742		111
Equipment financing	2,357		1,980		1,781		199		1
Totals:
Residential	160,936		146,944		24,423		122,521		14,731
Consumer	68,603		54,793		27,630		27,163		3,611
Commercial	90,627		69,426		21,942		47,484		6,423
Commercial real estate	144,482		141,149		77,426		63,723		2,683
Equipment financing	2,357		1,980		1,781		199		1
Total	$	467,005	$	414,292	$	153,202	$	261,090	$	27,449

The following table summarizes the average recorded investment and interest income recognized for impaired loans and leases by portfolio class:



	Years ended December 31,
	2013						2012						2011
(In thousands)	Average Recorded Investment		Accrued Interest Income		Cash Basis Interest Income		Average Recorded Investment		Accrued Interest Income		Cash Basis Interest Income		Average Recorded Investment		Accrued Interest Income		Cash Basis Interest Income
Residential:
1-4 family	$	144,776	$	4,117	$	1,952	$	140,931	$	4,490	$	1,148	$	128,846	$	3,902	$	1,268
Construction	132		2		2		197		4		2		67		7		1
Consumer:
Home equity	46,666		852		1,409		39,454		1,349		461		28,909		1,062		372
Liquidating - home equity	6,820		151		315		6,253		272		86		5,477		237		112
Other consumer	—		—		—		4		—		—		7		—		—
Commercial:
Commercial non-mortgage	60,813		2,889		—		87,393		3,852		—		120,152		4,529		—
Asset-based	—		—		—		929		—		—		7,833		251		—
Commercial real estate:
Commercial real estate	106,085		4,476		—		155,384		4,847		—		184,856		6,499		—
Commercial construction	3,593		249		—		7,279		285		—		21,835		887		—
Residential development	11,698		371		—		14,336		345		—		23,832		527		—
Equipment financing	1,095		22		—		2,624		45		—		10,373		78		—
Totals:
Residential	144,908		4,119		1,954		141,128		4,494		1,150		128,913		3,909		1,269
Consumer	53,486		1,003		1,724		45,711		1,621		547		34,393		1,299		484
Commercial	60,813		2,889		—		88,322		3,852		—		127,985		4,780		—
Commercial real estate	121,376		5,096		—		176,999		5,477		—		230,523		7,913		—
Equipment financing	1,095		22		—		2,624		45		—		10,373		78		—
Total	$	381,678	$	13,129	$	3,678	$	454,784	$	15,489	$	1,697	$	532,187	$	17,979	$	1,753

Credit Risk Management. The Company has certain credit policies and procedures in place designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis and reviews reports related to loan production, loan quality, concentration of credit, loan delinquencies, and non-performing and potential problem loans.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationships rather than transactional banking. Once it is determined that the borrower’s management possesses sound ethics and solid business acumen, the Company’s management examines current and projected cash flows to determine the ability of the borrower to repay obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed and may incorporate a personal guarantee.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those specific to real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Repayment of these loans is largely dependent on the successful operation of the property securing the loan, the market in which the property is located, and the tenants that conduct business at the property securing the loan. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location, which helps reduce the Company's exposure to adverse economic events that may affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. The Company also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting its loan portfolio.

Construction loans on commercial properties have unique risk characteristics and are provided to experienced developers/sponsors with strong track records of successful completion and sound financial condition and are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates, and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be subject to change as the construction project proceeds. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property, or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections by third-party professionals and the internal staff.

To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed, jointly by line and Risk Management personnel. Policies and procedures, coupled with relatively small loan amounts, and predominately collateralized structures spread across many individual borrowers, minimize risk. Trend and outlook reports are reviewed by management on a regular basis. Underwriting factors for mortgage and home equity loans include the borrower’s FICO score, the loan amount relative to property value and the borrower’s debt to income level and are also influenced by regulatory requirements.

Credit Quality Indicators. To measure credit risk for the commercial, commercial real estate, and equipment financing portfolios, the Company employs a dual grade credit risk grading system for estimating the probability of borrower default and the loss given default. The credit risk grade system assigns a rating to each borrower and to the facility, which together form a Composite Credit Risk Profile (“CCRP”). The credit risk grade system categorizes borrowers by common financial characteristics that measure the credit strength of borrowers and facilities by common structural characteristics. The CCRP has 10 grades, with each grade corresponding to a progressively greater risk of default. Grades 1 through 6 are considered pass ratings, and 7 through 10 are criticized as defined by the regulatory agencies. Risk ratings, assigned to differentiate risk within the portfolio, are reviewed on an ongoing basis and revised to reflect changes in the borrowers’ current financial position and outlook, risk profiles, and the related collateral and structural positions. Loan officers review updated financial information on at least an annual basis for all pass rated loans to assess the accuracy of the risk grade. All criticized loans undergo frequent review and enhanced monitoring of the underlying borrower.

A “Special Mention” (7) credit has the potential weakness that, if left uncorrected, may result in deterioration of the repayment prospects for the asset. “Substandard” (8) assets have a well defined weakness that jeopardizes the full repayment of the debt. An asset rated “Doubtful” (9) has all the same weaknesses as substandard credit with the added characteristic that the weakness makes collection or liquidation in full, given current facts, conditions, and values, improbable. Assets classified as “Loss” (10) in accordance with regulatory guidelines are considered uncollectible and charged off.

The recorded investment in commercial and commercial real estate loans and equipment financing leases segregated by risk rating exposure is as follows:



	Commercial				Commercial Real Estate				Equipment Financing
(In thousands)	At December 31,				At December 31,				At December 31,
	2013		2012		2013		2012		2013		2012
(1) - (6) Pass	$	3,091,154	$	2,701,061	$	2,947,116	$	2,588,987	$	437,033	$	381,304
(7) Special Mention	87,451		43,856		20,901		56,023		7,979		12,893
(8) Substandard	114,199		167,485		97,822		143,904		15,438		25,114
(9) Doubtful	440		784		585		1,688		—		—
(10) Loss	—		—		—		—		—		—
Total	$	3,293,244	$	2,913,186	$	3,066,424	$	2,790,602	$	460,450	$	419,311

For residential and consumer loans, the Company considers factors such as updated FICO scores, employment status, home prices, loan to value, geography, loans discharged in bankruptcy, and the status of first lien position loans on second lien position loans as credit quality indicators. On an ongoing basis for portfolio monitoring purposes, the Company estimates the current value of property secured as collateral for both home equity and residential first mortgage lending products. The estimate is based on home price indices compiled by the S&P/Case-Shiller Home Price Indices. The Case-Shiller data indicates trends for Metropolitan Statistical Areas. The trend data is applied to the loan portfolios taking into account the age of the most recent valuation and geographic area.

Troubled Debt Restructurings. The following table summarizes information for the Company’s TDRs:



(In thousands)	At December 31, 2013			At December 31, 2012
Recorded investment of TDRs:
Accrual status	$	238,926		$	288,578
Non-accrual status	102,972			115,583
Total recorded investment of TDRs	$	341,898		$	404,161
Accruing TDRs performing under modified terms more than one year	58.2		%	60.2		%
Specific reserves for TDRs included in the balance of allowance for loan and lease losses	$	20,360		$	27,317
Additional funds committed to borrowers in TDR status ⁽¹⁾	1,262			3,263


(1)	This amount may be limited by contractual rights and/or the underlying collateral supporting the loan or lease.

For the years ended December 31, 2013, 2012, and 2011, Webster charged off $24.4 million, $45.2 million, and $21.8 million, respectively, for the portion of TDRs deemed to be uncollectible.

The following table provides information on loans and leases modified as TDRs:



	Years ended December 31,
	2013							2012							2011
	Number of Loans and Leases	Pre- Modification Recorded Investment						Number of Loans and Leases	Pre- Modification Recorded Investment						Number of Loans and Leases	Pre- Modification Recorded Investment
				Post-Modification							Post-Modification							Post-Modification
(Dollars in thousands)				Recorded Investment		Coupon Rate					Recorded Investment		Coupon Rate					Recorded Investment		Coupon Rate
Residential:
1-4 family	124	$	25,833	$	25,833	4.0	%	197	$	32,974	$	32,974	4.4	%	137	$	31,939	31,939		4.1	%
Construction	—	—		—		—		2	263		263		6.6		—	—		—		—
Consumer:
Home equity	120	6,370		6,370		4.5		526	26,569		26,569		5.0		106	9,422		9,422		4.3
Liquidating - home equity	22	703		703		5.3		123	5,693		5,693		5.6		26	1,428		1,428		5.4
Commercial:
Commercial non-mortgage	29	13,265		13,265		6.5		37	22,699		22,699		6.3		48	45,507		45,507		6.4
Asset-based	—	—		—		—		—	—		—		—		3	2,563		2,563		5.2
Commercial real estate:
Commercial real estate	6	12,121		12,121		2.8		10	25,855		25,855		2.8		21	47,544		47,544		4.1
Commercial construction	—	—		—		—		—	—		—		—		1	10,100		10,100		3.0
Residential development	4	3,762		3,762		5.3		6	896		896		5.3		2	719		719		5.3
Equipment financing	—	—		—		—		8	590		590		6.7		2	216		216		7.9
Total	305	$	62,054	$	62,054	4.5	%	909	$	115,539	$	115,539	4.6	%	346	$	149,438	$	149,438	4.8	%

TDRs may be modified by means of extended maturity, below market adjusted interest rates, a combination of rate and maturity, or other means, including covenant modifications, forbearance, loans discharged under Chapter 7 bankruptcy, or other concessions.

The following table provides information on how loans and leases were modified as TDRs:



	Years ended December 31,
	2013								2012								2011
(In thousands)	Extended Maturity		Adjusted Interest Rates		Rate and Maturity		Other		Extended Maturity		Adjusted Interest Rates		Rate and Maturity		Other		Extended Maturity		Adjusted Interest Rates		Rate and Maturity		Other
Residential:
1-4 family	$	5,238	$	2,777	$	8,301	$	9,517	$	2,067	$	2,707	$	7,811	$	20,389	$	8,332	$	2,706	$	18,766	$	2,135
Construction	—		—		—		—		—		—		104		159		—		—		—		—
Consumer:
Home equity	963		154		1,500		3,753		1,079		224		1,380		23,886		4,760		—		4,187		475
Liquidating - home equity	201		—		7		495		35		—		—		5,658		631		—		797		—
Commercial:
Commercial non-mortgage	7,527		—		1,122		4,616		816		—		1,162		20,721		5,607		3,217		301		36,382
Asset-based	—		—		—		—		—		—		—		—		—		—		2,563		—
Commercial real estate:
Commercial real estate	38		—		12,015		68		2,112		—		1,792		21,951		18,424		5,996		539		22,585
Commercial construction	—		—		—		—		—		—		—		—		—		—		—		10,100
Residential development	189		—		3,573		—		319		—		577		—		—		—		—		719
Equipment financing	—		—		—		—		142		—		288		160		—		216		—		—
Total	$	14,156	$	2,931	$	26,518	$	18,449	$	6,570	$	2,931	$	13,114	$	92,924	$	37,754	$	12,135	$	27,153	$	72,396

The Company’s loan and lease portfolio at December 31, 2013 included seven loans with an A Note/B Note structure, with a combined recorded investment of $27.2 million. The loans were restructured into A Note/B Note structures as a result of evaluating the cash flow of the borrowers to support repayment. Webster immediately charged off the balance of B Notes totaling $13.3 million. TDR classification has been removed from one A Note with a recorded investment of $3.5 million, as the borrower passed the minimum compliance with the modified terms requirements. The restructuring agreement specifies a market interest rate equal to that which would be provided to a borrower with similar credit at the time of restructuring. The A Notes are paying under the terms of the modified loan agreements. All seven A Notes are on accrual status as the borrowers are paying under the terms of the loan agreements prior to and subsequent to the modification.

The following table provides information on loans and leases modified as TDRs within the previous 12 months and for which there was a payment default during the year:



	Years ended December 31,
	2013			2012			2011
(Dollars in thousands)	Number of Loans and Leases	Recorded Investment		Number of Loans and Leases	Recorded Investment		Number of Loans and Leases	Recorded Investment
Residential:
1-4 family	9	$	1,202	2	$	847	9	$	1,625
Consumer:
Home equity	4	339		—	—		8	1,195
Liquidating - home equity	—	—		—	—		2	108
Commercial:
Commercial non-mortgage	1	47		—	—		3	804
Asset-based	—	—		—	—		2	522
Commercial real estate:
Commercial real estate	—	—		—	—		3	1,371
Total	14	$	1,588	2	$	847	27	$	5,625

The recorded investment in commercial and commercial real estate loan and equipment financing TDRs segregated by risk rating exposure is as follows:



	At December 31,
(In thousands)	2013		2012
(1) - (6) Pass	$	55,973	$	56,661
(7) Special Mention	—		—
(8) Substandard	90,461		143,903
(9) Doubtful	414		1,860
(10) Loss	—		—
Total	$	146,848	$	202,424