Investment Securities

Summaries of the amortized cost, carrying value, and fair value of Webster’s investment securities are presented below:



	At September 30, 2014
			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	$	525	$	—	$	—		$	525	$	—	$	—		$	525
Agency collateralized mortgage obligations (“CMO”)	628,737		10,543		(1,057		)	638,223		—		—			638,223
Agency mortgage-backed securities (“MBS”)	1,103,345		11,014		(23,539		)	1,090,820		—		—			1,090,820
Agency commercial mortgage-backed securities (“ACMBS”)	80,732		—		(349		)	80,383		—		—			80,383
Commercial mortgage-backed securities (“CMBS”)	510,922		21,975		(55		)	532,842		—		—			532,842
Collateralized loan obligations ("CLO") ⁽¹⁾	379,741		912		(142		)	380,511		—		—			380,511
Pooled trust preferred securities	—		—		—			—		—		—			—
Single issuer trust preferred securities	41,936		83		(2,637		)	39,382		—		—			39,382
Corporate debt securities	107,132		4,068		—			111,200		—		—			111,200
Equity securities - financial institutions	—		—		—			—		—		—			—
Total available-for-sale	$	2,853,070	$	48,595	$	(27,779	)	$	2,873,886	$	—	$	—		$	2,873,886
Held-to-maturity:
Agency CMO	$	411,128	$	—	$	—		$	411,128	$	7,374	$	(1,409	)	$	417,093
Agency MBS	2,181,225		—		—			2,181,225		52,799		(23,068		)	2,210,956
Agency CMBS	377,382		—		—			377,382		650		(622		)	377,410
Municipal bonds and notes	377,074		—		—			377,074		15,332		(38		)	392,368
CMBS	288,692		—		—			288,692		8,833		(2,122		)	295,403
Private Label MBS	6,478		—		—			6,478		117		—			6,595
Total held-to-maturity	$	3,641,979	$	—	$	—		$	3,641,979	$	85,105	$	(27,259	)	$	3,699,825


(1)	Amortized cost is net of $2.8 million of other-than-temporary impairments at September 30, 2014.



	At December 31, 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	$	325	$	—	$	—		$	325	$	—	$	—		$	325
Agency CMO	794,397		14,383		(1,868		)	806,912		—		—			806,912
Agency MBS	1,265,276		9,124		(47,698		)	1,226,702		—		—			1,226,702
Agency CMBS	71,759		—		(782		)	70,977		—		—			70,977
CMBS	436,872		28,398		(996		)	464,274		—		—			464,274
CLO ⁽¹⁾	357,326		315		—			357,641		—		—			357,641
Pooled trust preferred securities ⁽²⁾	31,900		—		(3,410		)	28,490		—		—			28,490
Single issuer trust preferred securities	41,807		—		(6,872		)	34,935		—		—			34,935
Corporate debt securities	108,936		4,155		—			113,091		—		—			113,091
Equity securities - financial institutions ⁽³⁾	2,314		1,270		—			3,584		—		—			3,584
Total available-for-sale	$	3,110,912	$	57,645	$	(61,626	)	$	3,106,931	$	—	$	—		$	3,106,931
Held-to-maturity:
Agency CMO	$	365,081	$	—	$	—		$	365,081	$	10,135	$	(1,009	)	$	374,207
Agency MBS	2,130,685		—		—			2,130,685		43,315		(53,188		)	2,120,812
Agency CMBS	115,995		—		—			115,995		44		(818		)	115,221
Municipal bonds and notes	448,405		—		—			448,405		11,104		(1,228		)	458,281
CMBS	290,057		—		—			290,057		8,635		(4,975		)	293,717
Private Label MBS	8,498		—		—			8,498		176		—			8,674
Total held-to-maturity	$	3,358,721	$	—	$	—		$	3,358,721	$	73,409	$	(61,218	)	$	3,370,912


(1)	Amortized cost is net of $2.6 million of other-than-temporary impairments at December 31, 2013.


(2)	Amortized cost is net of $14.0 million of other-than-temporary impairments at December 31, 2013.


(3)	Amortized cost is net of $20.4 million of other-than-temporary impairments at December 31, 2013.

Contractual Maturities

The amortized cost and fair value of debt securities at September 30, 2014, 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	$	15,518	$	15,546	$	15	$	15
Due after one year through five years	107,131		111,200		70,092		73,095
Due after five through ten years	260,350		260,884		67,799		70,457
Due after ten years	2,470,071		2,486,256		3,504,073		3,556,258
Total debt securities	$	2,853,070	$	2,873,886	$	3,641,979	$	3,699,825

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, 2014, the Company had a carrying value of $818.0 million in callable securities in its CMBS, CLO, and municipal bond portfolios. The Company considers these factors in the evaluation of its interest rate risk profile and effective duration. These maturities do not reflect actual duration which is impacted by prepayment assumptions.

Securities with a carrying value totaling $2.9 billion at September 30, 2014 and $2.7 billion at December 31, 2013 were pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law. At September 30, 2014 and December 31, 2013, the Company had no investments in obligations of individual states, counties, or municipalities which exceeded 10% of consolidated shareholders’ equity.

Gross Unrealized Losses and Fair Value

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 type and length of time that individual investment securities have been in a continuous unrealized loss position:



	At September 30, 2014
	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 CMO	$	82,646	$	(278	)	$	35,915	$	(779	)	10	$	118,561	$	(1,057	)
Agency MBS	55,408		(262		)	665,932		(23,277		)	73	721,340		(23,539		)
Agency CMBS	36,325		(88		)	44,057		(261		)	4	80,382		(349		)
CMBS	15,000		(41		)	9,390		(14		)	3	24,390		(55		)
CLO	31,858		(142		)	—		—			2	31,858		(142		)
Pooled trust preferred securities	—		—			—		—			—	—		—
Single issuer trust preferred securities	—		—			35,120		(2,637		)	7	35,120		(2,637		)
Total available-for-sale in an unrealized loss position	$	221,237	$	(811	)	$	790,414	$	(26,968	)	99	$	1,011,651	$	(27,779	)
Held-to-maturity:
Agency CMO	$	111,069	$	(798	)	$	25,943	$	(611	)	10	$	137,012	$	(1,409	)
Agency MBS	258,608		(1,161		)	671,769		(21,907		)	64	930,377		(23,068		)
Agency CMBS	196,139		(622		)	—		—			9	196,139		(622		)
Municipal bonds and notes	4,311		(6		)	3,075		(32		)	14	7,386		(38		)
CMBS	5,494		(10		)	73,167		(2,112		)	8	78,661		(2,122		)
Total held-to-maturity in an unrealized loss position	$	575,621	$	(2,597	)	$	773,954	$	(24,662	)	105	$	1,349,575	$	(27,259	)



	At December 31, 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 CMO	$	149,894	$	(1,713	)	$	9,011	$	(155	)	15	$	158,905	$	(1,868	)
Agency MBS	616,286		(29,537		)	279,680		(18,161		)	88	895,966		(47,698		)
Agency CMBS	70,977		(782		)	—		—			3	70,977		(782		)
CMBS	52,340		(996		)	—		—			7	52,340		(996		)
CLO	—		—			—		—			—	—		—
Pooled trust preferred securities	—		—			11,141		(3,410		)	2	11,141		(3,410		)
Single issuer trust preferred securities	3,777		(381		)	31,158		(6,491		)	8	34,935		(6,872		)
Total available-for-sale in an unrealized loss position	$	893,274	$	(33,409	)	$	330,990	$	(28,217	)	123	$	1,224,264	$	(61,626	)
Held-to-maturity:
Agency CMO	$	53,789	$	(1,009	)	$	—	$	—		4	$	53,789	$	(1,009	)
Agency MBS	1,045,693		(42,181		)	170,780		(11,007		)	94	1,216,473		(53,188		)
Agency CMBS	90,218		(818		)	—		—			4	90,218		(818		)
Municipal bonds and notes	46,587		(1,193		)	2,166		(35		)	51	48,753		(1,228		)
CMBS	106,527		(4,059		)	14,832		(916		)	11	121,359		(4,975		)
Total held-to-maturity in an unrealized loss position	$	1,342,814	$	(49,260	)	$	187,778	$	(11,958	)	164	$	1,530,592	$	(61,218	)

Available-for-Sale Impairment Analysis

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, 2014. 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 (CMO) – There were unrealized losses of $1.1 million on the Company’s investment in agency CMO at September 30, 2014, compared to $1.9 million at December 31, 2013. Unrealized losses decreased due to lower market rates which resulted in higher security prices since December 31, 2013. 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, 2014.

Agency mortgage-backed securities (MBS) – There were unrealized losses of $23.5 million on the Company’s investment in residential mortgage-backed securities issued by government agencies at September 30, 2014, compared to $47.7 million at December 31, 2013. Unrealized losses decreased due to lower market rates which resulted in higher security prices since December 31, 2013. These investments are issued by a government or a government sponsored agency and therefore are backed by certain government guarantees, either direct or indirect. There has been no change in the credit quality and the contractual cash flows are performing as expected. The Company does not consider these securities to be other-than-temporarily impaired at September 30, 2014.

Agency commercial mortgage-backed securities (ACMBS) - There were unrealized losses of $0.3 million on the Company's investment in commercial mortgage-backed securities issued by government agencies at September 30, 2014, compared to $0.8 million at December 31, 2013. Unrealized losses decreased due to lower market rates which resulted in higher security prices since December 31, 2013. The Company does not consider these securities to be other-than-temporarily impaired at September 30, 2014.

Commercial mortgage-backed securities (CMBS) – There were unrealized losses of $55 thousand on the Company’s investment in commercial mortgage-backed securities issued by entities other than government agencies at September 30, 2014, compared to $1.0 million at December 31, 2013. Unrealized losses decreased due to lower market rates which resulted in higher security prices since December 31, 2013. Internal and external metrics are considered when evaluating potential OTTI. Internal stress tests are performed on individual bonds to monitor potential losses under 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, 2014.

Collateralized loan obligations (CLO) – There were unrealized losses of $142 thousand on the Company’s investment in Volcker compliant collateralized loan obligations at September 30, 2014 compared to no unrealized losses at December 31, 2013. The unrealized losses increased due to increased CLO spreads during the period. The Company does not consider these securities to be other-than-temporarily impaired at September 30, 2014. The Company continues to recognize the full write down of CLO positions to market value if they meet the definition of a covered fund under the Volcker Rule effective December 10, 2013.

Pooled trust preferred securities – There were no unrealized losses on the Company's investment in pooled trust preferred securities at September 30, 2014, compared to $3.4 million at December 31, 2013. The decrease in unrealized loss is due to the sale of the remaining two non-investment grade pooled trust preferred securities during the third quarter of 2014. The Company does not hold investments in pooled trust preferred securities at September 30, 2014.

Single issuer trust preferred securities - There were unrealized losses of $2.6 million on the Company's investment in single issuer trust preferred securities at September 30, 2014, compared to $6.9 million at December 31, 2013. Unrealized losses decreased due to lower market spreads which resulted in higher security prices since December 31, 2013. The single issuer portfolio consists of four investments issued by three large capitalization money center financial institutions, which continue to service the debt. The Company does not consider these securities to be other-than-temporarily impaired at September 30, 2014.

Corporate debt securities – There were no unrealized losses on the Company’s investment in corporate debt securities at September 30, 2014 and December 31, 2013. These securities are currently performing as expected at September 30, 2014.

Equity securities - financial institutions – There were no unrealized losses on the Company’s investment in equity securities at September 30, 2014 and December 31, 2013. The equity portfolio was sold at a gain during the current quarter. The Company does not hold investments in equity securities at September 30, 2014.

Held-to-Maturity Impairment Analysis

The following discussion summarizes, by investment 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, 2014. 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.

Agency CMO – There were unrealized losses of $1.4 million on the Company’s investment in agency CMO at September 30, 2014, compared to $1.0 million at December 31, 2013. Unrealized losses increased due to higher market rates on CMO purchased during the quarter. The contractual cash flows for these investments are performing as expected and there has been no change in the underlying credit quality. The Company does not consider these securities to be other-than-temporarily impaired at September 30, 2014.

Agency mortgage-backed securities (MBS) – There were unrealized losses of $23.1 million on the Company’s investment in residential mortgage-backed securities issued by government agencies at September 30, 2014, compared to $53.2 million at December 31, 2013. Unrealized losses decreased due to lower market rates which resulted in higher security prices since December 31, 2013. These investments are issued by a government or a government sponsored agency and therefore are backed by certain government guarantees, either direct or indirect. There has been no change in the credit quality and the contractual cash flows are performing as expected. The Company does not consider these securities to be other-than-temporarily impaired at September 30, 2014.

Agency commercial mortgage-backed securities (ACMBS) - There were unrealized losses of $0.6 million on the Company’s investment in commercial mortgage-backed securities issued by government agencies at September 30, 2014, compared to $0.8 million at December 31, 2013. Unrealized losses decreased due to lower market rates which resulted in higher security prices since December 31, 2013. The Company does not consider these securities to be other-than-temporarily impaired at September 30, 2014.

Municipal bonds and notes – There were unrealized losses of $38 thousand on the Company’s investment in municipal bonds and notes at September 30, 2014, compared to $1.2 million at December 31, 2013. Unrealized losses decreased due to lower market rates which resulted in higher security prices since December 31, 2013. The municipal portfolio is primarily comprised of bank qualified bonds, over 99.3% with credit ratings of A or better. In addition, the portfolio is comprised of 86.0% general obligation bonds, 13.5% revenue bonds, and 0.5% other bonds. The Company does not consider these securities to be other-than-temporarily impaired at September 30, 2014.

Commercial mortgage-backed securities (CMBS) – There were unrealized losses of $2.1 million on the Company’s investment in commercial mortgage-backed securities issued by entities other than government agencies at September 30, 2014, compared to $5.0 million unrealized losses at December 31, 2013. Unrealized losses decreased due to lower market rates which resulted in higher security prices since December 31, 2013. Internal and external metrics are considered when evaluating potential OTTI. Internal stress tests are performed on individual bonds to monitor potential losses under stress scenarios. In addition, market analytics are performed to validate internal results. 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, 2014.

Private Label MBS - There were no unrealized losses on the Company's investment in private label residential mortgage-backed securities issued by entities other than government agencies at September 30, 2014 and December 31, 2013. These securities are currently performing as expected at September 30, 2014.

Other-Than-Temporary Impairment

There were additions to OTTI of $85 thousand and $246 thousand for the three and nine months ended September 30, 2014, respectively, and no additions for the three and nine months ended September 30, 2013. The cumulative OTTI related to previously impaired securities was reduced due to the sale of four trust preferred securities during the first quarter of 2014, and the sale of two trust preferred securities and refinancing of two CLO during the third quarter of 2014. 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 is a roll forward of the amount of OTTI related to debt securities:



	Three months ended September 30,						Nine months ended September 30,
(In thousands)	2014			2013			2014			2013
Balance of OTTI, beginning of period	$	9,738		$	10,460		$	16,633		$	10,460
Reduction for securities sold, called	(7,026		)	(1,104		)	(14,082		)	(1,104		)
Additions for OTTI not previously recognized	85			—			246			—
Balance of OTTI, end of period	$	2,797		$	9,356		$	2,797		$	9,356

Realized Gains and Losses

The following table summarizes proceeds from available-for-sale securities, the gross realized gains and losses from those sales, and the impact of the recognition of other-than-temporary impairments for the periods presented:



	Three months ended September 30,					Nine months ended September 30,
(In thousands)	2014			2013		2014			2013
Proceeds from sales⁽¹⁾	$	16,380		$	7,740	$	38,075		$	44,261

Gross realized gains	$	1,812		$	269	$	6,148		$	708
Gross realized losses	(1,770		)	—		(1,770		)	—
OTTI write-down	(85		)	—		(246		)	—
Net realized (losses) gains from investment securities	$	(43	)	$	269	$	4,132		$	708


(1)	Proceeds from sales, for the three and nine months ended September 30, 2014, does not include $25.3 million of unsettled sales transactions at September 30, 2014. The gross realized gains and gross realized losses for the three and nine months ended September 30, 2014 reflect the unsettled sales transactions.