NOTE 3: Investment Securities

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


	At December 31, 2011
	Amortized cost (a)(b)		Recognized in OCI					Carrying value		Not Recognized in OCI					Fair value
			Gross unrealized gains		Gross unrealized losses					Gross unrealized gains		Gross unrealized losses
(Dollars in thousands)			Gross unrealized gains		Gross unrealized losses					Gross unrealized gains		Gross unrealized losses
Available for sale:
U.S. Treasury Bills	$	200	$	—	$	—		$	200	$	—	$	—		$	200
Agency notes—GSE		—		—		—			—		—		—			—
Agency collateralized mortgage obligations ("CMOs")—GSE		1,916,372		27,211		(3,341	)		1,940,242		—		—			1,940,242
Pooled trust preferred securities (a)		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 (b)		7,669		1,802		(24	)		9,447		—		—			9,447
Mortgage-backed securities—GSE		502,389		25,079		(158	)		527,310		—		—			527,310
Commercial mortgage-backed securities (CMBS)		319,200		22,395		(11,242	)		330,353		—		—			330,353

Total available for sale	$	2,849,463	$	76,487	$	(51,186	)	$	2,874,764	$	—	$	—		$	2,874,764

Held-to-maturity:
Municipal bonds and notes	$	646,358	$	—	$	—		$	646,358	$	30,960	$	(174	)	$	677,144
Agency collateralized mortgage obligations ("CMOs")—GSE		733,889		—		—			733,889		20,555		—			754,444
Mortgage-backed securities—GSE		1,411,008		—		—			1,411,008		98,449		—			1,509,457
Commercial mortgage-backed securities ("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

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

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


	At December 31, 2010
	Amortized cost (a)(b)		Recognized in OCI					Carrying value		Not Recognized in OCI					Fair value
			Gross unrealized gains		Gross unrealized losses					Gross unrealized gains		Gross unrealized losses
(Dollars in thousands)			Gross unrealized gains		Gross unrealized losses					Gross unrealized gains		Gross unrealized losses
Available for sale:
U.S. Treasury Bills	$	200	$	—	$	—		$	200	$	—	$	—		$	200
Agency notes—GSE		100,020		29		—			100,049		—		—			100,049
Agency collateralized mortgage obligations ("CMOs")—GSE		1,172,942		12,524		(6,307	)		1,179,159		—		—			1,179,159
Pooled trust preferred securities (a)		65,054		2,693		(14,558	)		53,189		—		—			53,189
Single issuer trust preferred securities		50,852		—		(8,577	)		42,275		—		—			42,275
Equity securities-financial institutions (b)		6,510		1,064		(233	)		7,341		—		—			7,341
Mortgage-backed securities—GSE		691,567		32,103		(88	)		723,582		—		—			723,582
Commercial mortgage-backed securities ("CMBS")		296,730		14,736		(3,485	)		307,981		—		—			307,981

Total available for sale	$	2,383,875	$	63,149	$	(33,248	)	$	2,413,776	$	—	$	—		$	2,413,776

Held to maturity:
Municipal bonds and notes	$	670,287	$	—	$	—		$	670,287	$	7,978	$	(25,199	)	$	653,066
Agency collateralized mortgage obligations ("CMOs")—GSE		643,189		—		—			643,189		13,292		(515	)		655,966
Mortgage-backed securities—GSE		1,707,893		—		—			1,707,893		77,204		(4,263	)		1,780,834
Commercial mortgage-backed securities (CMBS)		14,997		—		—			14,997		39		—			15,036
Private Label MBS		36,087		—		—			36,087		786		—			36,873

Total held-to-maturity	$	3,072,453	$	—	$	—		$	3,072,453	$	99,299	$	(29,977	)	$	3,141,775

Total investment securities	$	5,456,328	$	63,149	$	(33,248	)	$	5,486,229	$	99,299	$	(29,977	)	$	5,555,551

(a)	Amortized cost is net of $26.3 million of credit related other-than-temporary impairments at December 31, 2010.

(b)	Amortized cost is net of $21.7 million of other-than-temporary impairments at December 31, 2010.

Securities with a carrying value totaling $2.4 billion at December 31, 2011 and $2.6 billion at December 31, 2010 were pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law.

At December 31, 2011 and 2010, the Company had no investments in obligations of individual states, counties, or municipalities which exceed 10% of consolidated shareholders' equity.

The amortized cost and fair value of debt securities at December 31, 2011, by contractual maturity, are set forth below:


	Available for Sale				Held to Maturity
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	200	$	200	$	23,389	$	23,394
Due after one year through five years		—		—		9,860		10,253
Due after five through ten years		35,490		26,199		267,150		283,956
Due after ten years		2,806,104		2,838,918		2,673,328		2,812,943

Totals	$	2,841,794	$	2,865,317	$	2,973,727	$	3,130,546

For the purposes of the maturity schedule, mortgage-backed securities, 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, 2011, the Company had $654.6 million of callable securities in its investment portfolio.

Management evaluates securities for OTTI on a quarterly basis. All securities classified as held to maturity or available for sale that are in an unrealized loss position are evaluated for OTTI. Consideration is given to, among other qualitative factors, current market conditions, fair value in relationship to cost, extent and nature of change in fair value, issuer rating changes and trends, volatility of earnings, current analysts' evaluations, and all available information relevant to the collectability of debt securities. If the Company intends to sell the security or, if it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis, the security's amortized cost is written down to fair value, and the respective loss is recorded as non-interest expense in the Consolidated Statements of Operations. If the Company does not intend to sell the security and if it is more likely than not that the Company will not be required to sell the security prior to recovery of its amortized cost basis, only the credit component of the impairment charge of a debt security is recognized as a loss in non-interest income in the Consolidated Statements of Operations. The remaining non-credit impairment component is recorded in other comprehensive income ("OCI"). A decline in the value of an equity security that is considered OTTI is recorded as a loss in non-interest income in the Consolidated Statements of Operations.

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:


	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—GSE	$	405,318	$	(3,341	)	$	—	$	—			11	$	405,318	$	(3,341	)
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	)
Mortgage-backed securities-GSE		90,418		(158	)		—		—			3		90,418		(158	)
Commercial mortgage-backed securities (CMBS)		73,190		(1,924	)		14,957		(9,318	)		5		88,147		(11,242	)

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	)


	December 31, 2010
	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—GSE	$	450,099	$	(6,307	)	$	—	$	—			9	$	450,099	$	(6,307	)
Pooled trust preferred securities		8,126		(1,534	)		40,147		(13,024	)		9		48,273		(14,558	)
Single issuer trust preferred securities		—		—			42,275		(8,577	)		9		42,275		(8,577	)
Equity securities-financial institutions		1,328		(222	)		138		(11	)		14		1,466		(233	)
Mortgage-backed securities-GSE		28,391		(88	)		—		—			1		28,391		(88	)
Commercial mortgage-backed securities (CMBS)		—		—			55,817		(3,485	)		3		55,817		(3,485	)

Total available for sale	$	487,944	$	(8,151	)	$	138,377	$	(25,097	)		45	$	626,321	$	(33,248	)

Held-to-maturity:
Municipal bonds and notes	$	357,771	$	(23,621	)	$	11,737	$	(1,578	)		410	$	369,508	$	(25,199	)
Agency collateralized mortgage obligations ("CMOs")—GSE		51,874		(515	)		—		—			1		51,874		(515	)
Mortgage-backed securities—GSE		301,305		(4,263	)		—		—			11		301,305		(4,263	)

Total held-to-maturity	$	710,950	$	(28,399	)	$	11,737	$	(1,578	)		422	$	722,687	$	(29,977	)

Total investment securities	$	1,198,894	$	(36,550	)	$	150,114	$	(26,675	)		467	$	1,349,008	$	(63,225	)

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, 2011. 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 the security before the recovery of its amortized cost.

Trust Preferred Securities — Pooled Issuers — At December 31, 2011, the fair value of the pooled trust preferred securities was $29.0 million, a decrease of $24.2 million from the fair value of $53.2 million at December 31, 2010. The decrease in fair value is due to sales of two securities, principal pay downs on another, and wider credit and liquidity spreads. During the year ended December 31, 2011 the Company sold two securities with an amortized cost of $5.0 million at a loss of $3.3 million. The gross unrealized loss of $23.6 million at December 31, 2011 is attributable to cumulative decreases in market interest rates, increases in liquidity spread premiums to reflect the inactive and illiquid nature of the trust preferred securities market at this time and changes in the underlying credit profile of issuers in each trust over the holding period. Since the end of 2010, the 30 year swap rate has declined 149 basis points and credit spreads in general have increased. Over the course of 2011, the combination of these changes in interest rates and credit spreads, changes in the underlying securities cash flow projections, and a reduction in the overall size of the portfolio, accounted for the increase in unrealized losses of $9.1 million from December 31, 2010. For the year ended December 30, 2011, the Company recognized no credit related OTTI for these securities. As a result, there was no additional non-credit related OTTI recognized in OCI during the year. The pooled trust preferred portfolio consists of collateralized debt obligations ("CDOs") containing predominantly bank and insurance collateral that are investment grade and below investment grade. Based on the valuation analysis presented above, these securities were not deemed to be other-than-temporarily impaired as of December 31, 2011.

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 (c),(d)	Class		Amortized Cost (b)		Gross Unrealized Losses			Fair Value		Lowest Credit Ratings as of December 31, 2011 (a)		Total Other-Than- Temporary Impairment thru December 31, 2011			% of Performing Bank/ Insurance Issuers		Current Deferrals/ Defaults (As a % of Original Collateral)
(Dollars in thousands)
Security H		B	$	3,485	$	(1,800	)	$	1,685		B	$	(352	)		96.6		4.6
Security I		B		4,466		(2,305	)		2,161		CCC		(365	)		88.2		16.8
Security J		B		5,280		(2,905	)		2,375		CCC		(806	)		93.8		7.4
Security K		A		7,363		(3,685	)		3,678		CCC		(2,040	)		69.9		32.9
Security L		B		8,723		(4,604	)		4,119		CCC		(867	)		92.0		11.6
Security M		A		7,342		(4,493	)		2,849		D		(4,926	)		52.7		40.2
Security N		A		15,947		(3,816	)		12,131		A		(1,104	)		93.8		7.4

			$	52,606	$	(23,608	)	$	28,998			$	(10,460	)

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

(b)	For the securities deemed impaired, the amortized cost reflects previous OTTI recognized in earnings.

(c)	One security (Security G) with an amortized cost of $2.0 million was sold during the three months ended March 31, 2011 for a loss of $1.0 million.

(d)	One security (Security F) with an amortized cost of $3.0 million was sold during the three months ended June 30, 2011 for a loss of $2.3 million.

Trust Preferred Securities — Single Issuers — At December 31, 2011, the fair value of the single issuer trust preferred portfolio was $38.2 million, a decrease of $4.1 million from the fair value of $42.3 million at December 31, 2010. The gross unrealized loss of $12.8 million at December 31, 2011 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 continued to service debt and showed significantly improved capital levels in recent years and remain well above current regulatory standards. Based on the review of the qualitative and quantitative factors presented above, these securities were not deemed to be other-than-temporarily impaired at December 31, 2011.

The following table summarizes pertinent information that was considered by management in determining if OTTI existed within the single issuer trust preferred securities portfolio 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, 2011		Total Other- Than- Temporary Impairment thru December 31, 2011
(Dollars in thousands)
Security B	$	6,855	$	(1,484	)	$	5,371		BB	$	—
Security C		8,635		(1,552	)		7,083		BBB		—
Security D		9,540		(3,515	)		6,025		BB		—
Security E		11,719		(2,928	)		8,791		BBB		—
Security F		14,278		(3,334	)		10,944		BBB		—

	$	51,027	$	(12,813	)	$	38,214			$	—

Agency CMOs — GSE — There were $3.3 million in unrealized losses in the Company's investment in agency CMOs at December 31, 2011 compared to $6.3 million at December 31, 2010. The improvement in unrealized losses at December 31, 2011 was the result of lower overall interest rates and tighter market spreads during the year ended December 31, 2011 when compared to the year ended December 31, 2010. The contractual cash flows for these investments are performing as expected. As such, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2011.

Equity securities — The unrealized losses on the Company's investment in equity securities were $24 thousand at December 31, 2011 compared to $233 thousand at December 31, 2010. This portfolio consists primarily of investments in the common stock of small capitalization financial institutions based in New England ($8.5 million of the total fair value at December 31, 2011) and auction rate preferred securities ($1.0 million of the total fair value at December 31, 2011). 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 determined its holdings of equity securities were not deemed to be other-than-temporarily impaired at December 31, 2011.

Mortgage-backed securities — GSE — There were $158 thousand in unrealized losses in the Company's investment in residential mortgage-backed securities issued by the GSEs at December 31, 2011 compared to $88 thousand in unrealized losses at December 31, 2010. The contractual cash flows for these investments are performing as expected with the exception of unexpected principal prepayments resulting from GSE buyout programs initiated in 2011.

Commercial mortgage-backed securities — The unrealized losses on the Company's investment in commercial mortgage-backed securities issued by entities other than GSEs increased to $11.2 million at December 31, 2011 from $3.5 million at December 31, 2010. This increase in unrealized losses is primarily the result of recent widening in credit spreads in the year ended December 31, 2011. The contractual cash flows for these investments are performing as expected. The decrease in market value is attributable to cumulative changes in interest rates and not due to underlying credit deterioration. We continue to perform internal stress tests on individual bonds to monitor potential tranche losses in either the base or high stress test scenarios. In addition, we monitor bonds for potential stress by reviewing market surveillance provided by major banking firms. We then evaluate trends in both our internal and external findings to justify taking OTTI. Market surveillance analytics support our internal results for both base and high stress scenarios. Cash flows for the bonds continue to perform as expected and, therefore, no OTTI is warranted at this point in time. The Company has determined that these investments were not other-than-temporarily impaired at December 31, 2011.

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, 2011. 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 the securities before the recovery of their amortized costs. There were no significant credit downgrades on held to maturity securities during the year ended December 31, 2011.

Municipal bonds and notes — There were unrealized losses on the Company's investment in municipal bonds and notes of $174 thousand at December 31, 2011 compared to $25.2 million at December 31, 2010. This decrease is primarily the result of a decline in market interest rates in 2011 compared to 2010. The municipal portfolio is comprised of bank qualified bonds, over 94.9% with credit ratings of A or better. In addition, the portfolio is comprised of 85.9% General Obligation bonds and 13.8% Revenue bonds and 0.3% other bonds.

Agency collateralized mortgage obligations — GSE — There were no unrealized losses on the Company's investment in agency CMOs at December 31, 2011 compared to $515 thousand in unrealized losses at December 31, 2010. The contractual cash flows for this investment are performing as expected. With tighter market spreads and lower overall interest rates during the year ended December 31, 2011, the agency CMO securities are all at unrealized gains.

Mortgage-backed securities — GSE — There were no unrealized losses on the Company's investment in residential mortgage-backed securities issued by the GSEs at December 31, 2011 compared to $4.3 million at December 31, 2010. The contractual cash flows for these investments are performing as expected. The increase in market value is attributable to lower overall interest rates during the year ended December 31, 2011.

CMBS and Private Label CMOs — There were no unrealized losses on the Company's investment in commercial and residential mortgage-backed securities issued by entities other than GSEs at December 31, 2011 and 2010. These securities carry AAA ratings and are currently performing as expected.

The following table summarizes the impact of sale proceeds and net realized gains and losses on sales of investment securities and the impact of the recognition of other-than-temporary impairments for the years ended December 31, 2011, 2010 and 2009:


	Years ended December 31,
	2011												2010													2009
(In thousands)	Sale Proceeds		Gains		Losses			OTTI Charges		Net			Sale Proceeds		Gains		Losses			OTTI Charges			Net			Sale Proceeds		Gains		Losses			OTTI Charges			Net
Available for sale:
Agency notes—GSE	$	—	$	—	$	—		$	—	$	—		$	30,027	$	18	$	—		$	—		$	18		$	—	$	—	$	—		$	—		$	—
Agency CMOs—GSE		94,335		1,959		—			—		1,959			116,140		1,980		—			—			1,980			—		—		—			—			—
Pooled trust preferred securities		1,456		—		(3,343	)		—		(3,343	)		4,153		341		(933	)		(5,771	)		(6,363	)		958		10		(17,695	)		(24,933	)		(42,618	)
Single issuer trust preferred securities				—		—			—		—			—		—		—			—			—			5,625		611		—			—			611
Equity securities		2,353		374		—			—		374			—		—		—			(67	)		(67	)		17,538		854		(3,970	)		(3,544	)		(6,660	)
Mortgage-backed securities-GSE		180,613		4,833		—			—		4,833			266,154		8,342		—			—			8,342			409,127		6,380		—			—			6,380
Commercial mortgage-backed securities		—		—		—			—		—			—		—		—			—			—			—		—		—			—			—

Total available for sale	$	278,757	$	7,166	$	(3,343	)	$	—	$	3,823		$	416,474	$	10,681	$	(933	)	$	(5,838	)	$	3,910		$	433,248	$	7,855	$	(21,665	)	$	(28,477	)	$	(42,287	)

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


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

Subtotal of additions and reductions, net		(15,860	)		(17,172	)

Balance of credit related OTTI, end of year	$	10,460		$	26,320

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.

There were no additions to credit related OTTI for the year ended December 31, 2011. There was a reduction in outstanding credit related OTTI due to the sale of two securities during the year ended December 31, 2011. The $5.8 million addition to credit related OTTI for the year ended December 31, 2010 was reflective of payment deferrals and credit deterioration of the underlying collateral.

Direct Investments

In addition to investment securities, the Company owns investments primarily in private equity funds. These direct investments, which totaled $13.1 million at December 31, 2011 and $16.5 million at December 31, 2010, are included in other assets in the Consolidated Balance Sheets. The Company recognized a $1.6 million and $0.7 million gain, respectively, net of OTTI charges on these investments, during the years ended December 31, 2011 and 2010, and $1.1 million loss on these investments during the year ended December 31, 2009. These amounts are included in other non-interest income on the Consolidated Statements of Operations.

Trading Securities

During the second quarter ended June 30, 2010, 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 is recorded in other non-interest income in the Consolidated Statements of Operations 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.