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Webster Financial 10-Q 2010

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Graphic
  7. Graphic
Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2010.

or

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 001-31486

 

 

LOGO

WEBSTER FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   06-1187536

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

Webster Plaza, Waterbury, Connecticut   06702
(Address of principal executive offices)   (Zip Code)

(203) 465-4364

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    þ  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     ¨  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   þ    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

The number of shares of common stock, par value $.01 per share, outstanding as of April 29, 2010 was 78,475,237.

 

 

 


Table of Contents

INDEX

 

         Page No.

PART I – FINANCIAL INFORMATION

  
      Item 1.   Financial Statements    3
      Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations    37
      Item 3.   Quantitative and Qualitative Disclosures about Market Risk    62
      Item 4.   Controls and Procedures    62

PART II – OTHER INFORMATION

  
      Item 1.   Legal Proceedings    63
      Item 1A.   Risk Factors    63
      Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds    63
      Item 3.   Defaults Upon Senior Securities    63
      Item 4.   [Removed and Reserved]    63
      Item 5.   Other Information    63
      Item 6.   Exhibits    64

SIGNATURES

   65

EXHIBIT INDEX

   66

 

2


Table of Contents

PART I. – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In thousands, except share and per share data)

   March 31,
2010
    December 31,
2009
 
     (Unaudited)        

Assets:

    

Cash and due from banks

   $ 158,065      $ 171,184   

Interest-bearing deposits

     162,193        390,310   

Investment securities:

    

Available for sale, at fair value

     2,365,956        2,126,043   

Held-to-maturity (fair value of $2,992,958 and $2,720,180)

     2,915,923        2,658,869   
                

Total investment securities

     5,281,879        4,784,912   

Federal Home Loan Bank and Federal Reserve Bank stock, at cost

     140,874        140,874   

Loans held for sale (included $21,286 and $4,790 of mortgage loans carried at fair value, respectively)

     29,790        12,528   

Loans

     10,896,520        11,036,709   

Allowance for loan losses

     (343,871     (341,184
                

Loans, net

     10,552,649        10,695,525   

Deferred tax asset, net

     121,010        121,733   

Premises and equipment, net

     171,178        178,422   

Goodwill

     529,887        529,887   

Other intangible assets, net

     25,468        26,865   

Cash surrender value of life insurance policies

     290,786        289,486   

Prepaid FDIC premiums

     73,752        79,241   

Accrued interest receivable and other assets

     487,184        318,230   
                

Total assets

   $ 18,024,715      $ 17,739,197   
                

Liabilities and Equity:

    

Deposits:

    

Noninterest bearing deposits

   $ 1,662,122      $ 1,664,958   

Interest bearing deposits

     12,331,404        11,967,169   
                

Total deposits

     13,993,526        13,632,127   

Federal Home Loan Bank advances

     574,378        544,651   

Securities sold under agreements to repurchase and other short-term borrowings

     849,876        856,846   

Long-term debt

     588,540        588,419   

Accrued expenses and other liabilities

     162,678        159,120   
                

Total liabilities

     16,168,998        15,781,163   
                

Shareholders’ equity:

    

Preferred stock, $.01 par value; Authorized - 3,000,000 shares;

    

Series A issued and outstanding - 28,939 shares

     28,939        28,939   

Series B issued and outstanding - 300,000 shares and 400,000 shares (net of discount $4,795 and $6,830)

     295,205        393,170   

Common stock, $.01 par value; Authorized - 200,000,000 shares

    

Issued - 81,969,280 shares and 81,963,734 shares

     820        820   

Paid-in capital

     1,007,153        1,007,740   

Retained earnings

     699,642        708,024   

Less: Treasury stock, (at cost; 4,019,023 shares and 4,067,057 shares)

     (159,363     (161,911

Accumulated other comprehensive loss, net

     (26,320     (28,389
                

Total Webster Financial Corporation shareholders’ equity

     1,846,076        1,948,393   
                

Non controlling interests

     9,641        9,641   
                

Total equity

     1,855,717        1,958,034   
                

Total liabilities and equity

   $ 18,024,715      $ 17,739,197   
                

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

     Three months ended March 31,  

(In thousands, except per share data)

   2010     2009  

Interest Income:

    

Interest and fees on loans and leases

   $ 123,350      $ 140,767   

Taxable interest and dividends on securities

     46,625        42,844   

Non-taxable interest and dividends on securities

     7,531        7,983   

Loans held for sale

     314        164   
                

Total interest income

     177,820        191,758   
                

Interest Expense:

    

Deposits

     31,951        52,908   

Borrowings

     14,485        20,653   
                

Total interest expense

     46,436        73,561   
                

Net interest income

     131,384        118,197   

Provision for loan losses

     43,000        66,000   
                

Net interest income after provision for loan losses

     88,384        52,197   
                

Non-interest Income:

    

Deposit service fees

     27,784        27,959   

Loan related fees

     6,005        6,482   

Wealth and investment services

     5,835        5,750   

Mortgage banking activities

     (138     606   

Increase in cash surrender value of life insurance policies

     2,578        2,592   

Gain on early extinguishment of subordinated notes

     —          5,993   

Net gain on sale of investment securities

     4,318        4,457   

Total other-than-temporary impairment losses on securities

     (8,214     —     

Portion of the loss recognized in other comprehensive income

     4,534        —     
                

Net impairment losses recognized in earnings

     (3,680     —     

Other income

     4,314        276   
                

Total non-interest income

     47,016        54,115   
                

Non-interest Expense:

    

Compensation and benefits

     61,079        56,469   

Occupancy

     14,440        14,295   

Technology and equipment expense

     15,268        15,140   

Intangible assets amortization

     1,397        1,464   

Marketing

     4,791        3,106   

Professional and outside services

     2,602        3,784   

Deposit insurance

     6,085        4,590   

Other including fraud related costs

     27,962        19,170   
                

Total non-interest expense

     133,624        118,018   
                

Income (loss) from continuing operations before income tax expense (benefit)

     1,776        (11,706

Income tax expense (benefit)

     355        (593
                

Income (loss) from continuing operations

     1,421        (11,113

Income (loss) from discontinued operations, net of tax

     —          —     
                

Consolidated net income (loss)

     1,421        (11,113

Less: Net income attributable to non controlling interests

     —          13   
                

Net income (loss) attributable to Webster Financial Corporation

     1,421        (11,126

Preferred stock dividends, accretion of preferred stock discount

     (7,490     (10,431
                

Net loss available to common shareholders

   $ (6,069   $ (21,557
                

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited), continued

 

     Three months ended March 31,  

(In thousands, except per share data)

   2010     2009  

Net loss per common share:

    

Basic

    

Loss from continuing operations

   $ (0.08   $ (0.41

Net loss available to common shareholders

     (0.08     (0.41

Diluted

    

Loss from continuing operations

     (0.08     (0.41

Net loss available to common shareholders

     (0.08     (0.41

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

 

     Three months ended March 31, 2009  

(In thousands, except share and per
share data)

   Preferred
Stock
   Common
Stock
   Paid In
Capital
    Retained
Earnings
    Treasury
Stock
    Accumulated
Other
Comprehensive
(Loss) Income
    Non Controlling
Interest
   Total  

Balance, December 31, 2008

   $ 616,326    $ 566    $ 733,487      $ 783,875      $ (154,225   $ (105,910   $ 9,619    $ 1,883,738   
                                                             

Cumulative effect of change in accounting principle

     —        —        —          —          —          —          —        —     

Comprehensive income:

                   

Net (loss) income

     —        —        —          (11,126     —          —          13      (11,113

Other comprehensive income (loss), net of taxes:

                   

Net unrealized gain on securities available for sale

     —        —        —          —          —          (17     —        (17

Amortization of unrealized loss on securities transferred to held to maturity

     —        —        —          —          —          60        —        60   

Realized portion of deferred hedging gain

     —        —        —          —          —          (66     —        (66

Net actuarial gain and prior service cost for pension and other postretirement benefits

     —        —        —          —          —          530        —        530   

Unrealized gain on cash flow hedge

     —        —        —          —          —          321        —        321   

Amortization of deferred hedging gain

     —        —        —          —          —          (114     —        (114
                                                             

Other comprehensive loss, net of taxes

     —        —        —          —          —          714        —        714   
                                                             

Total comprehensive income, net of taxes

                      (10,465

Dividends paid on common stock of $.01 per share

     —        —        —          (529     —          —          —        (529

Dividends paid on Series A preferred stock $21.25 per share

     —        —        —          (4,779     —          —          —        (4,779

Dividends incurred on Series B preferred stock $12.50 per share

     —        —        —          (5,000     —          —          —        (5,000

Subsidiary preferred stock dividends per share

     —        —        —          (216     —          —          —        (216

Exercise of stock options

     —        —        —          —          —          —          —        —     

Repurchase of 6,123 common shares

     —        —        —          —          (36     —          —        (36

Stock-based compensation expense

     —        —        635        —          —          —          —        635   

Accretion of preferred stock discount

     436      —        —          (436     —          —          —        —     

Restricted stock grants and expense

     —        —        3,427        —          (1,690     —          —        1,737   

Additional issuance costs associated with the issuance of the Series B preferred stock and warrant

     —        —        (24     —          —          —          —        (24
                                                             

Balance, March 31, 2009

   $ 616,762    $ 566    $ 737,525      $ 761,789      $ (155,951   $ (105,196   $ 9,632    $ 1,865,127   
                                                             

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited), continued

 

     Three months ended March 31, 2010  

(In thousands, except share and
per share data)

   Preferred
Stock
    Common
Stock
   Paid In
Capital
    Retained
Earnings
    Treasury
Stock
    Accumulated
Other
Comprehensive
(Loss)
    Non Controlling
Interest
   Total  

Balance, December 31, 2009

   $ 422,109      $ 820    $ 1,007,740      $ 708,024      $ (161,911   $ (28,389   $ 9,641    $ 1,958,034   
                                                              

Comprehensive income:

                  

Net income

     —          —        —          1,421        —          —          —        1,421   

Other comprehensive income (loss), net of taxes:

                  

Net unrealized gain on securities available for sale, net of taxes

     —          —        —          —          —          4,273        —        4,273   

Noncredit related impairment change in fair value on securities

     —          —        —          —          —          (2,947     —        (2,947

Amortization of unrealized loss on securities transferred to held to maturity

     —          —        —          —          —          85        —        85   

Realized portion of deferred hedging gain

     —          —        —          —          —          (45     —        (45

Net actuarial gain and prior service cost for pension and other postretirement benefits

     —          —        —          —          —          387        —        387   

Unrealized gain on cash flow hedge

     —          —        —          —          —          354        —        354   

Amortization of deferred hedging gain

     —          —        —          —          —          (38     —        (38
                                                              

Other comprehensive income, net of taxes

     —          —        —          —          —          2,069        —        2,069   
                                                              

Total comprehensive income, net of taxes

                     3,445   

Dividends paid on common stock of $.01 per share

     —          —        —          (782     —          —          —        (782

Dividends paid on Series A preferred stock $21.66 per share

     —          —        —          (615     —          —          —        (615

Dividends incurred on Series B preferred stock $12.50 per share

     —          —        —          (4,583     —          —          —        (4,583

Redemption of Preferred Stock

     (98,365     —        —          (1,635     —          —          —        (100,000

Subsidiary preferred stock dividends $0.21 per share

     —          —        —          (216     —          —          —        (216

Exercise of stock options

     —          —        308          110        —          —        418   

Repurchase of common shares 18,854

     —          —        —          —          (288     —          —        (288

Stock-based compensation expense

     —          —        (927     (813     1,493        —          —        (247

Accretion of preferred stock discount

     400        —        —          (400     —          —          —        —     

Issuance of common stock

     —          —        32        (759     1,233        —          —        506   
                                                              

Balance, March 31, 2010

   $ 324,144      $ 820    $ 1,007,153      $ 699,642      $ (159,363   $ (26,320   $ 9,641    $ 1,855,717   
                                                              

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

      Three months ended March 31,  

(In thousands)

   2010     2009  

Operating Activities:

    

Consolidated net income (loss)

   $ 1,421      $ (11,126

Income (loss) from continuing operations

     1,421        (11,126

Adjustments to reconcile (loss) income from continuing operations to net cash provided by operating activities:

    

Provision for loan losses

     43,000        66,000   

Deferred tax benefit

     (1,554     (10,423

Depreciation and amortization

     21,966        14,060   

Gain on early extinguishment of subordinated notes

     —          (4,504

Stock-based compensation

     (247     2,373   

Foreclosed and repossessed asset write-downs

     2,061        3,840   

Write-down of fixed assets

     9        —     

Loss on write-down of investments to fair value

     3,680        —     

Gain on fair value adjustment of direct investments

     (694     —     

Net gain on the sale of securities

     (4,318     (4,458

Net loss on trading securities

     —          77   

Increase in cash surrender value of life insurance

     (1,300     (2,592

Net (increase) in loans held for sale

     (17,262     (24,352

Net (increase) in accrued interest receivable and other assets

     (154,026     (15,414

Net (decrease) increase in accrued expenses and other liabilities

     (2,392     2,062   
                

Net cash (used for) provided by operating activities

     (109,656     15,543   
                

Investing Activities:

    

Net decrease in interest-bearing deposits

     228,117        2,212   

Purchases of available for sale securities

     (528,208     (353,222

Proceeds from maturities and principal payments of available for sale securities

     164,095        47,430   

Proceeds from sales of available for sale securities

     120,622        402,309   

Purchases of held-to-maturity securities

     (378,214     (2,675

Proceeds from maturities and principal payments of held-to-maturity securities

     119,500        95,031   

Net decrease in loans

     89,448        49,335   

Proceeds from sale of foreclosed properties

     3,842        3,165   

Proceeds from sale of fixed assets

     675        —     

Purchases of fixed assets

     (2,575     (5,632
                

Net cash (used for) provided by investing activities

     (182,698     237,953   
                

Financing Activities:

    

Net increase in deposits

     361,399        809,869   

Proceeds from Federal Home Loan Bank advances

     243,000        9,329,810   

Repayments of Federal Home Loan Bank advances

     (213,115     (9,993,703

Net (decrease) in securities sold under agreements to repurchase and other short-term debt

     (6,489     (423,639

Redemption of Preferred Stock

     (100,000     —     

Repayment of long-term debt

     —          (15,928

Issuance of Preferred Stock, net of issuance costs

     —          (24

Cash dividends paid to common shareholders

     (782     (529

Cash dividends paid to preferred shareholders of consolidated affiliate

     —          (216

Cash dividends paid to preferred shareholders

     (5,414     (9,446

Exercise of stock options

     418        —     

Common stock issued

     506        —     

Common stock repurchased

     (288     (36
                

Net cash provided by (used for) financing activities

     279,235        (303,842
                

Net decrease in cash and due from banks

     (13,119     (50,346

Cash and due from banks at beginning of period

     171,184        259,208   
                

Cash and due from banks at end of period

   $ 158,065      $ 208,862   
                

Supplemental disclosure of cash flow information:

    

Interest paid

   $ 45,968      $ 76,798   

Income taxes paid

     91        790   

Noncash investing and financing activities:

    

Gain on early extinguishment of fair value hedge of subordinated debt

   $ —        $ 1,489   

Transfer of loans and leases, net to foreclosed properties

     7,390        10,331   

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1: Summary of Significant Accounting Policies

Nature of Operations. Webster Financial Corporation (“Webster” or the “Company”) is a financial holding company and a bank holding company headquartered in Waterbury, Connecticut that delivers, through its subsidiaries, financial services to individuals, families and businesses throughout New England and into Westchester County, New York. Webster also offers equipment financing, asset-based lending, health savings accounts and, prior to November 2009, insurance premium financing on a national basis and commercial real estate lending on a regional basis.

Basis of Presentation. The Condensed Consolidated Financial Statements include the accounts of Webster and all other entities in which Webster has a controlling financial interest (collectively referred to as “Webster” or the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and financial reporting policies Webster follows conform, in all material respects, to accounting principles generally accepted in the United States (“GAAP”) and to general practices within the financial services industry.

The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity under accounting principles generally accepted in the United States. Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities. Subsidiaries of the Company that have issued trust preferred securities are not consolidated.

The Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments were of a normal and recurring nature. The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the Condensed Consolidated Financial Statements do not include all of the information and footnotes required by accounting GAAP for complete financial statements and should be read in conjunction with the Company’s Consolidated Financial Statements, and notes thereto, for the year ended December 31, 2009, included in Webster’s Annual Report on Form 10-K filed with the SEC on March 1, 2010 (the “2009 Form 10-K”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates. The preparation of the Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements. Actual results could differ from those estimates. The allowance for loan losses, the fair values of financial instruments, the deferred tax asset valuation allowance and the status of goodwill evaluation are particularly subject to change.

Earnings Per Share. Earnings per share is computed using the two-class method prescribed under FASB ASC Topic 260, “Earnings Per Share,” which provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share. The Company has determined that its outstanding non-vested restricted stock awards are participating securities. Under the two-class method, basic earnings per common share is computed by dividing net earnings allocated to common stock by the weighted-average number of common shares outstanding during the applicable period, excluding outstanding participating securities. Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method. A reconciliation of the weighted-average shares used in calculating basic earnings per common share and the weighted average common shares used in calculating diluted earnings per common share for the reported periods is provided in Note 11 – Earnings Per Common Share.

Comprehensive Income. Comprehensive income includes all changes in shareholders’ equity during a period, except those resulting from transactions with shareholders. Besides net income, other components of Webster’s comprehensive income include the after-tax effect of changes in the net unrealized gain/loss on securities available for sale, non-credit related impairment changes in fair value on securities, amortization of unrealized losses on securities transferred to held to maturity, changes in the net actuarial gain/loss on defined benefit post-retirement benefit plans and changes in the accumulated gain/loss on effective cash flow hedging instruments.

Reclassifications. Certain items in prior financial statements have been reclassified to conform to current presentation.

There have been no other changes to our significant accounting policies that were disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

 

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Recent Accounting Standards

FASB ASC Topic 810, “Consolidation.” As disclosed in the Company’s summary of significant accounting policies in Note 1 of Notes to Consolidated Financial Statements in the Company’s Annual reporting on Form 10-K for the fiscal year ended December 31, 2009, new authoritative accounting guidance under FASB ASC Topic 810 amends prior guidance to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The new authoritative accounting guidance requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. The new authoritative accounting guidance under FASB ASC Topic 810 was effective on January 1, 2010 and did not have a significant impact on the Company’s Condensed Consolidated Financial Statements as of the three months ended March 31, 2010.

Additional new authoritative accounting guidance under FASB ASC Topic 810 clarifies the scope related to the accounting and reporting for decreases in ownership of a subsidiary. This related guidance applies to; a subsidiary or group of assets that is a business or nonprofit activity, a subsidiary that is a business or nonprofit activity that is transferred to an equity method investee or joint venture, and an exchange of a group of assets that constitutes a business or nonprofit activity for a non-controlling interest in an entity (including an equity method investee or a joint venture). Additionally, the new authoritative accounting guidance requires expanded disclosures related to valuation techniques used to measure the fair value of any retained investment, nature of any continuing involvement, and whether the transaction that was with a related party or whether the former subsidiary or entity acquiring the assets will become a related party. The forgoing new authoritative accounting guidance under FASB ASC Topic 810 became effective for the Company’s Consolidated Financial Statements for the annual reporting period ended on December 31, 2009 and did not have a significant impact on the Company’s Consolidated Financial Statements.

FASB ASC Topic 820, “Fair Value Measurements and Disclosures.” FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of FASB ASC Topic 820 became effective for the Company on January 1, 2008 for financial assets and financial liabilities and on January 1, 2009 for non-financial assets and non-financial liabilities (see Note 13-Fair Value Measurements).

New authoritative accounting guidance under FASB ASC Topic 820 requires additional disclosures relating to Level 1, Level 2, and Level 3 fair value measurements. Specifically, the entity is required to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reason for the transfer. Additionally, the entity is required to present separately purchases, sales, issuances, and settlements of fair value measurements using significant unobservable inputs (Level 3). In addition, the Company should provide fair value measurement disclosures for each class of assets and liabilities and disclosures for the valuation techniques and inputs used to measure fair value for both recurring and non recurring fair value measurements that fall into Level 2 or Level 3. The new authoritative accounting guidance under FASB ASC Topic 820 is effective for annual reporting periods beginning after December 15, 2009, with the exception of the separate disclosure of purchases, sales, issuances and settlements of fair value measurements using significant unobservable inputs (Level 3) which is effective for the first quarter ended 2011. The Company included the required disclosures for the period ended March 31, 2010 in Note 13 Fair Value Measurements.

FASB ASC Topic 860, “Accounting for Transfers of Financial Assets.” FASB ASC Topic 860, “Accounting for Transfers of Financial Assets,” represents a revision to the provisions of former FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and requires more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to the transferred financial assets. The new authoritative accounting guidance under FASB ASC Topic 860 is to be applied prospectively, with past agreements grandfathered under the previous guidance. The forgoing new authoritative accounting guidance under FASB ASC Topic 860 became effective for the Company’s Consolidated Financial Statements for periods ending after January 1, 2010 and did not have a significant impact on the Company’s Consolidated Financial Statements.

 

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NOTE 2: Investment Securities

The following table presents a summary of the cost, carrying value and fair value of Webster’s investment securities.

 

     March 31, 2010
     Amortized
cost (a)(b)
   Recognized in OCI     Carrying
value
   Not Recognized in OCI     Fair value

(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

     130,255      22      (39     130,238           130,238

Agency collateralized mortgage obligations (“CMOs”) - GSE

     719,944      7,246      (724     726,466           726,466

Pooled trust preferred securities (a)

     72,370      2,639      (17,054     57,955           57,955

Single issuer trust preferred securities

     50,731      —        (8,318     42,413           42,413

Equity securities (b)

     6,760      195      (440     6,515           6,515

Mortgage-backed securities - GSE

     1,101,102      33,958      (1,363     1,133,697           1,133,697

Mortgage-backed securities - Private Label

     285,346      5,465      (22,339     268,472           268,472
                                                  

Total available for sale

   $ 2,366,708    $ 49,525    $ (50,277   $ 2,365,956         $ 2,365,956
                                                  

Held to maturity:

                  

Municipal bonds and notes

   $ 675,515         $ 675,515    $ 13,372    $ (4,449   $ 684,438

Agency collateralized mortgage obligations (“CMOs”) - GSE

     341,617           341,617      3,140      —          344,757

Mortgage-backed securities - GSE

     1,849,588           1,849,588      67,645      (2,849     1,914,384

Mortgage-backed securities - Private Label

     49,203           49,203      212      (36     49,379
                                                  

Total held to maturity

   $ 2,915,923         $ 2,915,923    $ 84,369    $ (7,334   $ 2,992,958
                                                  

Total investment securities

   $ 5,282,631    $ 49,525    $ (50,277   $ 5,281,879    $ 84,369    $ (7,334   $ 5,358,914
                                                  

 

(a) Amortized cost is net of $47.1 million of credit related other-than-temporary impairments at March 31, 2010.
(b) Amortized cost is net of $21.7 million of other-than-temporary impairments at March 31, 2010.

 

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     December 31, 2009
     Amortized
cost (a)(b)
   Recognized in OCI     Carrying
value
   Not Recognized in OCI     Fair value

(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

     130,343      —        (196     130,147           130,147

Agency collateralized mortgage obligations (“CMOs”) - GSE

     320,682      260      (2,085     318,857           318,857

Pooled trust preferred securities (a)

     76,217      5,288      (10,816     70,689           70,689

Single issuer trust preferred securities

     50,692      —        (11,978     38,714           38,714

Equity securities - financial institutions (b)

     6,826      251      (478     6,599           6,599

Mortgage-backed securities - GSE

     1,365,005      45,782      (845     1,409,942           1,409,942

Mortgage-backed securities - Private Label

     178,870      1,113      (29,088     150,895           150,895
                                                  

Total available for sale

   $ 2,128,835    $ 52,694    $ (55,486   $ 2,126,043         $ 2,126,043
                                                  

Held to maturity:

                  

Municipal bonds and notes

   $ 686,495         $ 686,495    $ 14,663    $ (4,018   $ 697,140

Mortgage-backed securities - GSE

     1,919,882           1,919,882      55,109      (4,151     1,970,840

Mortgage-backed securities - Private Label

     52,492           52,492         (292     52,200
                                                  

Total held to maturity

   $ 2,658,869         $ 2,658,869    $ 69,772    $ (8,461   $ 2,720,180
                                                  

Total investment securities

   $ 4,787,704    $ 52,694    $ (55,486   $ 4,784,912    $ 69,772    $ (8,461   $ 4,846,223
                                                  

 

(a) Amortized cost is net of $43.5 million of credit related other-than-temporary impairments at December 31, 2009.
(b) Amortized cost is net of $21.6 million of other-than-temporary impairments at December 31, 2009.

Securities with a carrying value totaling $2.5 billion at March 31, 2010 and $2.2 billion at December 31, 2009 were pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law.

The amortized cost and fair value of debt securities at March 31, 2010, by contractual maturity, are set for the below.

 

     Available for Sale    Held to Maturity

(Dollars in thousands)

   Amortized
Cost
   Fair
Value
   Amortized
Cost
   Fair
Value

Due in one year or less

   $ 130,455    $ 130,438    $ 5,615    $ 5,619

Due after one year through five years

     27,337      27,511      3,053      3,077

Due after five through ten years

     49,719      39,097      403,195      421,052

Due after ten years

     2,152,437      2,162,395      2,504,060      2,563,210
                           

Totals

   $ 2,359,948    $ 2,359,441    $ 2,915,923    $ 2,992,958
                           

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 March 31, 2010, the Company had $705.0 million of callable securities in its investment portfolio.

At March 31, 2010 and December 31, 2009, the Company had no investments in obligations of individual states, counties, or municipalities, which exceed 10% of shareholders’ equity.

Management evaluates securities for other than temporary impairment (“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, 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 is written down to fair value and the respective loss is recorded as non-interest expense in the Consolidated Statement 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 any impairment charge of a debt security is be recognized as a loss in non-interest expense in the consolidated statement of income. The remaining impairment is recorded in OCI. A decline in the value of an equity security that is considered OTTI is recorded as a loss in non-interest expense on the Consolidated Statements of Operations.

 

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The following table provides 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 March 31, 2010.

 

          March 31, 2010  
     # of
Holdings
   Less Than Twelve Months     Twelve Months or Longer     Total  

(Dollars in thousands)

      Fair Value    Unrealized 
Losses
    Fair Value    Unrealized 
Losses
    Fair Value    Unrealized 
Losses
 

Available for Sale:

                  

Agency notes - GSE

   3    $ 80,151    $ (39   $ —      $ —        $ 80,151    $ (39

Agency CMOs - GSE

   2      76,002      (724     —        —          76,002      (724

Pooled trust preferred securities

   9      51,371      (17,054     —        —          51,371      (17,054

Single issuer trust preferred securities

   9      —          42,413      (8,318     42,413      (8,318

Equity securities

   14      2,422      (440     —        —          2,422      (440

Mortgage-backed securities-GSE

   15      222,813      (1,363     —        —          222,813      (1,363

Mortgage-backed securities-Private Label

   7      39,879      (349     62,313      (21,990     102,192      (22,339
                                                  

Total available for sale

   59    $ 472,638    $ (19,969   $ 104,726    $ (30,308   $ 577,364    $ (50,277
                                                  

Held-to-maturity:

                  

Municipal bonds and notes

   182    $ 161,427    $ (3,277   $ 12,888    $ (1,173   $ 174,315    $ (4,450

Mortgage-backed securities-GSE

   4      115,815      (2,849     —        —          115,815      (2,849

Mortgage-backed securities-Private Label

   1      12,601      (35     —        —          12,601      (35
                                                  

Total held-to-maturity

   187    $ 289,843    $ (6,161   $ 12,888    $ (1,173   $ 302,731    $ (7,334
                                                  

Total investment securities

   246    $ 762,481    $ (26,130   $ 117,614    $ (31,481   $ 880,095    $ (57,611
                                                  

The following table provides 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 December 31, 2009.

 

          December 31, 2009  
     # of
Holdings
   Less Than Twelve Months     Twelve Months or Longer     Total  

(Dollars in thousands)

      Fair Value    Unrealized 
Losses
    Fair Value    Unrealized 
Losses
    Fair Value    Unrealized 
Losses
 

Available for Sale:

                  

Agency notes - GSE

   4    $ 130,147    $ (196   $ —      $ —        $ 130,147    $ (196

Agency CMOs - GSE

   4      168,383      (2,085     —        —          168,383      (2,085

Pooled trust preferred securities

   11      60,154      (10,816     —        —          60,154      (10,816

Single issuer trust preferred securities

   5      —        —          38,714      (11,978     38,714      (11,978

Equity securities - financial institutions

   26      969      (134     2,411      (344     3,380      (478

Mortgage-backed securities-GSE

   4      40,705      (845     —        —          40,705      (845

Mortgage-backed securities-Private Label

   8      43,840      (1,118     56,313      (27,970     100,153      (29,088
                                                  

Total available for sale

   62    $ 444,198    $ (15,194   $ 97,438    $ (40,292   $ 541,636    $ (55,486
                                                  

Held-to-maturity:

                  

Municipal bonds and notes

   164    $ 142,028    $ (2,841   $ 13,072    $ (1,177   $ 155,100    $ (4,018

Mortgage-backed securities-GSE

   8      314,003      (4,151     —        —          314,003      (4,151

Mortgage-backed securities-Private Label

   3      52,200      (292     —        —          52,200      (292
                                                  

Total held-to-maturity

   175    $ 508,231    $ (7,284   $ 13,072    $ (1,177   $ 521,303    $ (8,461
                                                  

Total investment securities

   237    $ 952,429    $ (22,478   $ 110,510    $ (41,469   $ 1,062,939    $ (63,947
                                                  

 

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The following summarizes, by investment security type, the basis for evaluating if the applicable investment securities within the Company’s available for sale portfolio that were other-than-temporarily impaired at March 31, 2010.

Trust Preferred Securities – Pooled Issuers – At March 31, 2010, the fair value of the pooled trust preferred securities was $58.0 million, a decrease of $12.7 million from the fair value of $70.7 million at December 31, 2009. The gross unrealized loss of $17.1 million, at March 31, 2010 is primarily attributable to changes in interest rates including a liquidity spread premium to reflect the inactive and illiquid nature of the trust preferred securities market at this time. For the period ended March 31, 2010, the Company recognized $3.6 million in OTTI for these securities, reflective of assumed reductions in quality of insurance company credit ratings. Non credit related OTTI of $4.5 million on securities not expected to be sold and for which it is not more likely than not that we will be required to sell the securities before recovery of their amortized cost basis, was recognized in OCI during the three months ended March 31, 2010. 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. The Company employs an internal CDO model for projection of future cash flows and discounting those cash flows to a net present value. An internal model is used to value the securities due to the continued inactive market and illiquid nature of pooled trust preferreds in the entire capital structure. Each underlying issuer in the pools is rated internally using the latest financial data on each institution, and future deferrals, defaults and losses are then 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 time of purchase. Other factors considered include an analysis of excess subordination and temporary interest shortfall coverage. Based on the valuation analysis as of March 31, 2010, management expects to fully recover amortized cost. However, additional interest deferrals, defaults, or ratings changes could result in future OTTI charges.

The following table summarizes pertinent information that was considered by management in evaluating Trust Preferred Securities – Pooled Issuers for OTTI.

Trust Preferred Securities - Pooled Issuers

 

Deal Name (d)

   Class    Amortized
Cost (b)
   Unrealized     Fair
Value
   Lowest Credit
Ratings as of
March 31,
2010 (a)
   Total
Other-Than-
Temporary
Impairment thru
March 31, 2010
    Number of
Performing
Banks and
Insurance Cos.
In Issuance
   Current
Deferrals/
Defaults
(As a % of
Remaining
Collateral)
 
         Gains    (Losses)               
(Dollars in thousands)                                                 

Security A

   MEZ    $ 815    $ 139      $ 954    C    $ (1,866   26    24.9

Security B

   C      917      500        1,417    CCC      (4,094   17    9.0   

Security D (c)

   B      740         (357     383    CC      (9,073   60    27.4   

Security E

   B      2,130         (133     1,997    C      (7,909   36    —     

Security F-1

   C      2,213      2,000        4,213    C      (10,850   49    —     

Security F-2

   C      473         (322     151    C      49    —     

Security G (c)

   B      2,721         (1,308     1,413    CC      (4,219   56    26.9   

Security H

   B      3,506         (1,325     2,181    B      (326   29    —     

Security I

   B      4,481         (1,694     2,787    B      (345   17    9.0   

Security J

   B      5,243         (2,106     3,137    B      (806   31    4.2   

Security K (c)

   A      7,303         (1,428     5,875    B      (2,040   53    31.0   

Security L

   B      8,784         (3,409     5,375    B      (793   24    5.8   

Security M (c)

   A      8,571         (1,442     7,129    D      (3,680   91    —     

Security N

   A      24,473         (3,530     20,943    AA      (1,104   31    4.2   
                                                
      $ 72,370    $ 2,639    $ (17,054   $ 57,955       $ (47,105     
                                                

 

(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) OTTI of $3.6 million was recognized on these 4 securities during the three months ended March 31, 2010.
(d) Security C was sold during the fourth quarter of 2009.

 

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Based on the review of qualitative and quantitative factors, the remaining securities were not deemed to be other-than-temporarily impaired at March 31, 2010. The Company 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 – Single Issuers – At March 31, 2010, the fair value of the single issuer trust preferred portfolio was $42.4 million, an increase of $3.7 million from the fair value of $38.7 million at December 31, 2009. The increase in fair value is directly related to the favorable improvement in the credit spreads of these securities. The single issuer portfolio consists of five investments issued by three large cap, money center financial institutions. During the three months ended March 31, 2010, two issuers were downgraded. However, impairment was not warranted due to the issuers’ continued ability to service their debt and indications of stabilization in their capital structures.

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 (a)

   Amortized
Cost (a)
   Unrealized
Losses
    Fair
Value
   Lowest Credit
Ratings as of
March 31,
2010
   Total
Other-Than-
Temporary
Impairment
thru March  31,
2010
(Dollars in thousands)                          

Security B

   $ 6,788    $ (1,531   $ 5,257    BB    $ —  

Security C

     8,558      (953     7,605    BBB   

Security D

     9,540      (2,015     7,525    BB      —  

Security E

     11,634      (1,616     10,018    BBB      —  

Security F

     14,211      (2,203     12,008    BBB      —  
                               
   $ 50,731    $ (8,318   $ 42,413       $ —  
                               

 

(a) Security A was sold during fourth quarter of 2009.

Based on the review of the qualitative and quantitative factors presented above, these securities were not deemed to be other-than-temporarily impaired at March 31, 2010 as the Company 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.

Agency notes – GSE – The unrealized losses on the Company’s investment in agency notes decreased to $39 thousand at March 31, 2010 from $196 thousand at December 31, 2009. The contractual cash flows for these investments are performing as expected. As the decline in market value is attributable to cumulative changes in interest rates and not due to underlying credit deterioration, management does not have the intent to sell the securities, and based upon available evidence it is more likely than not that the Company will not be required to sell the securities before the recovery of its amortized cost, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2010.

Agency CMOs – GSE – The unrealized loss on the Company’s investment in agency CMOs decreased to $0.7 million at March 31, 2010 from $2.1 million at December 31, 2009. The contractual cash flows for these investments are performing as expected. As the decline in market value is attributable to cumulative changes in interest rates and not due to underlying credit deterioration, management does not have the intent to sell the securities, and based upon available evidence it is more likely than not that the Company will not be required to sell the securities before the recovery of its amortized cost, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2010.

Equity securities – The unrealized losses on the Company’s investment in equity securities decreased to $0.4 million at March 31, 2010 from $0.5 million at December 31, 2009. This portfolio consists primarily of investments in the common stock of small capitalization financial institutions based in New England ($4.8 million of the total fair value) and auction rate preferred securities ($1.7 million of the total fair value at March 31, 2010). 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 March 31, 2010.

 

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Mortgage-backed securities – GSE – The unrealized losses on the Company’s investment in residential mortgage-backed securities issued by the GSEs increased to $1.4 million at March 31, 2010 from $0.8 million at December 31, 2009. The contractual cash flows for these investments are performing as expected with the exception of unexpected principal prepayments resulting from GSE policy changes regarding the treatment of defaulted loans. As the decline in market value is attributable to cumulative changes in interest rates and GSE policy changes and not due to underlying credit deterioration, and because management does not have the intent to sell the securities, and based upon available evidence it is more likely than not that the Company will not be required to sell the securities before the recovery of its amortized cost, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2010.

Mortgage-backed securities – Private Label – The unrealized losses on the Company’s investment in commercial mortgage-backed securities issued by entities other than GSEs decreased to $22.3 million at March 31, 2010 from $29.1 million at December 31, 2009. This decrease is primarily the result of improvement in credit spreads in 2010 compared to 2009. The contractual cash flows for these investments are performing as expected. As the decline in market value is attributable to cumulative changes in interest rates and not due to underlying credit deterioration, and because management does not have the intent to sell the securities, and based upon available evidence it is more likely than not that the Company will not be required to sell the securities before the recovery of its amortized cost, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2010.

The following 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 March 31, 2010:

Municipal bonds and notes – The unrealized losses on the Company’s investment in municipal bonds and notes increased to $4.4 million at March 31, 2010 from $4.0 million at December 31, 2009. This increase is primarily the result of interest rate changes in 2010 compared to 2009. These securities are primarily insured AA and A rated general obligation bonds with stable ratings. The Company does not intend to sell these investments and has determined, based upon available evidence, it is more likely than not that the Company will not be required to sell the securities before the recovery of its amortized cost, therefore the Company has determined that these investments were not other-than-temporarily impaired at March 31, 2010.

Mortgage-backed securities – GSE – The unrealized losses on the Company’s investment in residential mortgage-backed securities issued by the GSEs was $2.8 million at March 31, 2010 a decrease of $1.4 million as compared to $4.2 million at December 31, 2009. The contractual cash flows for these investments are performing as expected with the exception of unexpected principal prepayments resulting from GSE policy changes regarding the treatment of defaulted loans. As the increase in market value is attributable to cumulative changes in interest rates versus underlying credit deterioration, and because management does not have the intent to sell the securities and based upon available evidence, it is more likely than not that the Company will not be required to sell the securities before the recovery of its amortized cost, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2010.

Mortgage-backed securities – Private Label – The unrealized losses on the Company’s investment in residential mortgage-backed securities issued by entities other than GSEs decreased to $36 thousand at March 31, 2010 from $0.3 million at December 31, 2009. These securities carry AAA ratings and are currently performing as expected. The Company 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 its amortized cost and therefore the Company has determined that these investments were not other-than-temporarily impaired at March 31, 2010.

There were no significant credit downgrades on held-to-maturity securities during the three months ended March 31, 2010, which are currently performing as anticipated. Management expects that recovery of these temporarily impaired securities will occur over the weighted-average estimated remaining life of these securities.

For the three months ended March 31, 2010 and 2009, proceeds from sale of available for sale securities were $120.7 million and $402.3 million, respectively. Gross gains and losses realized from the sale of available for sale securities was $4.3 million and $0.0 million and $5.9 million and $1.4 million, respectively, for the three months ended March 31, 2010 and 2009. When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale.

 

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The following tables summarize the impact of net realized gains and losses on sales of securities and the impact of the recognition of other-than-temporary impairments for the three months ended March 31, 2010 and 2009.

 

     Three months ended March 31,  
     2010     2009  

(In thousands)

   Gains    Losses    OTTI
Charges
    Net     Gains    Losses     OTTI
Charges
   Net  

Trading securities:

                    

Municipal bonds and notes

   $ —      $ —      $ —        $ —        $ —      $ (1   $ —      $ (1

Other

     —        —        —          —          —        —          —        —     
                                                            

Total trading

     —        —        —          —          —        (1     —        (1
                                                            

Available for sale:

                    

Agency notes - GSE

     —        —        —          —          —        —          —        —     

Single issuer trust preferred securities

     —        —        —          —          —        —          —        —     

Pooled trust preferred securities

     —        —        (3,613     (3,613     —        —          —        —     

Equity securities

     —        —        (67     (67     206      (1,444     —        (1,238

Mortgage-backed securities

     4,318      —        —          4,318        5,696      —          —        5,696   
                                                            

Total available for sale

     4,318      —        (3,680     638        5,902      (1,444     —        4,458   
                                                            

Total

   $ 4,318    $ —      $ (3,680   $ 638      $ 5,902    $ (1,445   $ —      $ 4,457   
                                                            

The following is a roll forward of the amount of credit related OTTI recognized in earnings for the three months ended March 31, 2010:

 

(In thousands)

   Three months ended
March 31, 2010

Balance of credit related OTTI, beginning of year

   $ 43,492

Additions for credit related OTTI not previously recognized (a)

     3,613

Reduction for securities sold

     —  

Reduction for non-credit related OTTI previously recognized when there is no intent and/or requirement to sell before recovery of the amortized cost basis

     —  
      

Subtotal of net additions (reductions)

     3,613
      

Balance of credit-related OTTI end of period

   $ 47,105
      

 

(a) The $3.6 million addition to credit-related OTTI is primarily the result of assumed reductions in the quality of insurance company credit ratings.

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.

In addition to investment securities, the Company carries investments in private equity funds. These investments, which totaled $13.0 million at March 31, 2010, are included in other assets in the Condensed Consolidated Balance Sheet. The Company recognized a $0.7 million gain, net of OTTI charges, on these investments during the three months ended March 31, 2010. This amount is included in other non-interest income on the Condensed Consolidated Statement of Operations.

 

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NOTE 3: Loans, Net

A summary of loans, net follows:

 

     At March 31, 2010    At December 31, 2009

(In thousands)

   Amount     %    Amount     %

Residential mortgage loans:

         

1-4 family

   $ 2,821,892      25.9    $ 2,825,938      25.6

Permanent-NCLC

     32,578      0.3      36,790      0.3

Construction

     28,376      0.2      27,408      0.2

Liquidating portfolio-construction loans

     3,309      0.1      4,817      0.1
                         

Total residential mortgage loans

     2,886,155      26.5      2,894,953      26.2
                         

Consumer loans:

         

Home equity loans

     2,694,469      24.7      2,745,154      24.9

Liquidating portfolio-home equity loans

     207,258      1.9      219,125      2.0

Other consumer

     28,150      0.3      27,590      0.2
                         

Total consumer loans

     2,929,877      26.9      2,991,869      27.1
                         

Commercial loans:

         

Commercial non-mortgage

     1,539,200      14.1      1,505,181      13.6

Asset-based loans

     504,175      4.6      527,187      4.8

Equipment financing

     836,494      7.7      886,892      8.1
                         

Total commercial loans

     2,879,869      26.4      2,919,260      26.5
                         

Commercial real estate:

         

Commercial real estate

     1,925,664      17.7      1,921,685      17.4

Commercial construction

     132,404      1.2      148,173      1.3

Residential development

     97,455      0.9      114,586      1.1
                         

Total commercial real estate

     2,155,523      19.8      2,184,444      19.8
                         

Net unamortized premiums

     11,958      0.1      12,512      0.1

Net deferred costs

     33,138      0.3      33,671      0.3
                         

Total unamortized premiums and deferred costs

     45,096      0.4      46,183      0.4
                         

Total loans

     10,896,520      100.0      11,036,709      100.0
                         

Less: allowance for loan losses

     (343,871        (341,184  
                     

Loans, net

   $ 10,552,649         $ 10,695,525     
                     

A majority of mortgage loans are secured by real estate in the State of Connecticut. Accordingly, the ultimate collectability of a substantial portion of the loan portfolio is dependent on economic and market conditions in Connecticut.

Loans totaling $3.9 billion at March 31, 2010 and $4.1 billion at December 31, 2009 were pledged as collateral for borrowings, as required or permitted by law.

Non-Performing Loans. Accrual of interest is discontinued if the loan is placed on nonaccrual status. Residential real estate and consumer loans are placed on nonaccrual status at 90 days past due. All commercial loans are subject to a detailed review by the Company’s credit risk team when 90 days past due and a specific determination is made to put a loan on non-accrual status. When a loan is transferred to nonaccrual status, unpaid accrued interest is reversed and charged against interest income. Interest on loans that are more than 90 days past due, as well as certain other loans as determined by management, is no longer accrued and all previously accrued and unpaid interest is charged to interest income. Nonaccrual loans totaled $348.8 million and $373.0 million at March 31, 2010 and December 31, 2009, respectively. Interest on nonaccrual loans that would have been recorded as additional interest income for the three months ended March 31, 2010 and 2009 had the loans been current in accordance with their original terms totaled $6.9 million and $6.1 million, respectively.

Impaired Loans. Webster individually reviews loans not expected to be collected in accordance with the original terms of the contractual agreement for impairment based on the fair value of expected cash flows or collateral. At March 31, 2010, impaired loans totaled $434.5 million, including loans with specific reserves of $166.7 million. At December 31, 2009, impaired loans totaled $401.2 million, including loans with specific reserves of $118.5 million. The increase in impaired loans is primarily related to the restructuring of $35.1 million of commercial real estate loans and Webster’s continued participation in the mortgage assistance program.

 

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The following table summarizes impaired loans for the periods presented:

 

     March 31, 2010    December 31, 2009

(In thousands)

   With
Specific
Reserves
   Without
Reserves
   Total    With
Specific
Reserves
   Without
Reserves
   Total

Loans impaired and still accruing

                 

Residential

   $ 18,255    $ —      $ 18,255    $ 11,496    $ 2,732    $ 14,228

Equipment financing

     2,628      248      2,876      1,454      —        1,454

Consumer

     2,220      201      2,421      764      759      1,523

Commercial

     72,527      114,712      187,239      22,305      138,391      160,696
                                         

Total loans impaired and still accruing

   $ 95,630    $ 115,161    $ 210,791    $ 36,019    $ 141,882    $ 177,901
                                         

Loans impaired and not accruing

                 

Residential

   $ 16,007    $ 38,827    $ 54,834    $ 23,834    $ 28,147    $ 51,981

Equipment financing

     2,857      20,052      22,909      739      17,190      17,929

Consumer

     2,312      13,164      15,476      4,041      9,976      14,017

Commercial

     49,900      80,619      130,519      53,847      85,524      139,371
                                         

Total loans impaired and not accruing

   $ 71,076    $ 152,662    $ 223,738    $ 82,461    $ 140,837    $ 223,298
                                         

Total impaired loans

   $ 166,706    $ 267,823    $ 434,529    $ 118,480    $ 282,719    $ 401,199
                                         

The average recorded investment in impaired loans was $417.9 million and $302.3 million at March 31, 2010 and December 31, 2009, respectively.

Troubled Debt Restructures. A loan whose terms have been modified due to the financial difficulties of a borrower is reported by Webster as a troubled debt restructure (“TDR”). All TDRs are placed on non-accrual status until the loan qualifies for return to accrual status. Loans qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement for a minimum of six months. TDRs are by definition impaired loans and have been reported within the impaired loan categories in the preceding table. In accordance with Webster’s credit risk policy, loans or portions of loans are charged off against the allowance for loan losses when deemed by management to be uncollectible. For the three months ended March 31, 2010, Webster charged off $1.9 million for the portion of TDRs deemed to be uncollectible. For the three months ended March 31, 2009 there were no charge-offs on TDRs. At March 31, 2010, there were no commitments to lend any additional funds to debtors in troubled debt restructurings.

At March 31, 2010 and December 31, 2009, total troubled debt restructurings approximated $201.5 million and $190.6 million, respectively as follows:

 

(In thousands)

   March 31,
2010
   December 31,
2009

Residential

   $ 36,788    $ 59,438

Equipment financing

     8,996      9,611

Consumer

     7,127      12,453

Commercial

     148,572      109,139
             

Total

   $ 201,483    $ 190,641
             

 

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Allowance for loan losses. The following table provides detail of activity in the Company’s allowance for loan losses for the three months ended March 31:

 

     Three months ended
March 31,
 

(In thousands)

   2010     2009  

Continuing portfolio:

    

Balance at beginning of period

   $ 287,784      $ 191,426   

Provision

     34,821        53,834   

Charge-offs:

    

Residential

     (4,455     (2,964

Consumer

     (9,896     (6,541

Commercial (a)

     (14,208     (10,605

Residential development

     (5,131     (48
                

Total charge-offs - continuing portfolio

     (33,690     (20,158
                

Recoveries

     2,256        1,460   
                

Net charge-offs - continuing portfolio

     (31,434     (18,698
                

Ending balance - continuing portfolio

   $ 291,171      $ 226,562   
                

Liquidating portfolio:

    

Balance at beginning of period

   $ 53,400      $ 43,903   

Provision

     8,179        11,866   

Charge-offs:

    

NCLC

     (70     (2,086

Consumer (home equity)

     (9,315     (9,911
                

Total charge-offs - liquidating portfolio

     (9,385     (11,997
                

Recoveries

     506        595   
                

Net charge-offs - liquidating portfolio

     (8,879     (11,402
                

Ending balance - liquidating portfolio

     52,700        44,367   
                

Ending balance - allowance for loan losses

   $ 343,871      $ 270,929   
                

 

(a) All Small Business loans, both commercial and commercial real estate, are considered commercial for purposes of reporting charge-offs and recoveries.

NOTE 4: Goodwill and Other Intangible Assets

The following tables set forth the carrying values of goodwill and other intangible assets, net of accumulated amortization:

 

(In thousands)

   March 31,
2010
   December 31,
2009

Balances not subject to amortization:

     

Goodwill

   $ 529,887    $ 529,887

Balances subject to amortization:

     

Core deposit intangibles

     25,468      26,865
             

Total goodwill and other intangible assets

   $ 555,355    $ 556,752
             

Goodwill is allocated to Webster’s business segments as follows:

 

(In thousands)

   March 31,
2010
   December 31,
2009

Retail Banking

   $ 516,560    $ 516,560

Other

     13,327      13,327
             

Total

   $ 529,887    $ 529,887
             

No impairment losses on goodwill or other intangible assets were incurred during the three months ended March 31, 2010.

 

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Amortization of intangible assets for the three months ended March 31, 2010, totaled $1.4 million. Estimated annual amortization expense of current intangible assets with finite useful lives, absent any future impairment or change in estimated useful lives, is summarized below for each of the next five years and thereafter.

 

(In thousands)

    

For years ending December 31,

  

2010

   $ 5,588

2011

     5,588

2012

     5,420

2013

     4,918

2014

     2,685

Thereafter

     2,666
  

NOTE 5: Deposits

A summary of deposit types follows:

 

      March 31, 2010     December 31, 2009  

(Dollars in thousands)

   Amount    % of
total deposits
    Amount    % of
total deposits
 

Demand

   $ 1,662,122    11.9   $ 1,664,958    12.2

NOW

     2,127,530    15.2        2,244,347    16.5   

Money market

     2,384,297    17.0        1,991,423    14.6   

Savings

     3,372,260    24.1        3,146,603    23.1   

Health savings accounts

     782,207    5.6        668,163    4.9   

Certificates of deposit

     3,613,735    25.8        3,830,865    28.1   

Brokered deposits

     51,375    0.4        85,768    0.6   
                          

Total

   $ 13,993,526    100.0   $ 13,632,127    100.0
                          

Interest expense on deposits is summarized as follows:

 

     Three months ended
March 31,

(In thousands)

   2010    2009

NOW

   $ 1,273    $ 547

Money market

     4,069      5,676

Savings

     6,285      6,815

Health savings accounts

     2,251      2,673

Certificates of deposit

     17,651      35,557

Brokered deposits

     422      1,640
             

Total

   $ 31,951    $ 52,908
             

The scheduled maturities of time deposits (in thousands) at March 31, 2010 are as follows:

 

(In thousands)

    

Maturing in the years ending December 31:

  

2010

   $ 2,538,633

2011

     620,261

2012

     110,438

2013

     225,779

2014

     104,394

Thereafter

     65,605
      

Total

   $ 3,665,110
      

 

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NOTE 6: Federal Home Loan Bank Advances

Advances payable to the Federal Home Loan Bank are summarized as follows:

 

     March 31, 2010    December 31, 2009

(In thousands)

   Total
Outstanding
   Callable    Total
Outstanding
   Callable

Fixed Rate:

           

4.16 % to 4.95 % due in 2010

   $ 115,000    $ 115,000    $ 135,015    $ 135,000

3.19 % to 6.60 % due in 2011

     100,331      —        100,404      —  

4.00 % to 4.00 % due in 2012

     51,400      —        51,400      —  

0.28 % to 5.49 % due in 2013

     299,000      49,000      249,000      49,000

0.00 % to 6.00 % due after 2014

     5,972      —        6,000