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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 September 30, 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.)

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

(203) 578-2202

(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). þ  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 October 25, 2010 was 78,507,624.

 

 

 


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

     42   

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

     70   

Item 4.

 

Controls and Procedures

     70   

PART II – OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     71   

Item 1A.

 

Risk Factors

     72   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     72   

Item 3.

 

Defaults Upon Senior Securities

     72   

Item 4.

 

[Removed and Reserved]

     72   

Item 5.

 

Other Information

     72   

Item 6.

 

Exhibits

     73   

SIGNATURES

     74   

EXHIBIT INDEX

     75   

 

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)

   September 30,
2010
    December 31,
2009
 
     (Unaudited)        

Assets:

    

Cash and due from banks

   $ 174,971      $ 171,184   

Interest bearing deposits

     65,255        390,310   

Trading securities, at fair value

     9,991        —     

Securities available for sale, at fair value

     2,258,380        2,126,043   

Securities held to maturity (fair value of $3,233,772 and $2,720,180)

     3,097,515        2,658,869   

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

     143,874        140,874   

Loans held for sale

     13,024        12,528   

Loans

     10,908,183        11,036,709   

Allowance for loan losses

     (340,341     (341,184
                

Loans, net

     10,567,842        10,695,525   

Deferred tax asset, net

     113,145        121,733   

Premises and equipment, net

     160,774        178,422   

Goodwill

     529,887        529,887   

Other intangible assets, net

     22,674        26,865   

Cash surrender value of life insurance policies

     295,516        289,486   

Prepaid FDIC premiums

     62,813        79,241   

Accrued interest receivable and other assets

     284,597        318,230   
                

Total assets

   $ 17,800,258      $ 17,739,197   
                

Liabilities and Equity:

    

Deposits:

    

Non-interest bearing deposits

   $ 1,840,937      $ 1,664,958   

Interest bearing deposits

     11,733,098        11,967,169   
                

Total deposits

     13,574,035        13,632,127   

Federal Home Loan Bank advances

     473,512        544,651   

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

     1,048,362        856,846   

Long-term debt

     584,727        588,419   

Accrued expenses and other liabilities

     213,126        159,120   
                

Total liabilities

     15,893,762        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 $4,141 and $6,830)

     295,859        393,170   

Common stock, $.01 par value; Authorized - 200,000,000 shares issued - 81,983,263 shares and 81,963,734 shares

     820        820   

Paid-in capital

     1,008,377        1,007,740   

Retained earnings

     723,450        708,024   

Less: Treasury stock, (at cost; 3,838,956 shares and 4,067,057 shares)

     (151,180     (161,911

Accumulated other comprehensive loss, net

     (9,414     (28,389
                

Total Webster Financial Corporation shareholders’ equity

     1,896,851        1,948,393   
                

Non controlling interests

     9,645        9,641   
                

Total equity

     1,906,496        1,958,034   
                

Total liabilities and equity

   $ 17,800,258      $ 17,739,197   
                

See accompanying Notes to Condensed Consolidated Financial Statements.

 

3


Table of Contents

 

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

     Three months ended
September 30,
    Nine months ended
September 30,
 

(In thousands, except per share data)

   2010     2009     2010     2009  

Interest Income:

        

Interest and fees on loans and leases

   $ 123,042      $ 131,266      $ 368,839      $ 409,566   

Taxable interest and dividends on securities

     45,709        45,117        140,268        129,060   

Non-taxable interest and dividends on securities

     7,473        7,858        22,513        23,541   

Loans held for sale

     79        716        537        1,713   
                                

Total interest income

     176,303        184,957        532,157        563,880   
                                

Interest Expense:

        

Deposits

     26,409        41,977        88,842        144,867   

Borrowings

     15,160        16,308        44,855        54,856   
                                

Total interest expense

     41,569        58,285        133,697        199,723   
                                

Net interest income

     134,734        126,672        398,460        364,157   

Provision for loan losses

     25,000        85,000        100,000        236,000   
                                

Net interest income after provision for loan losses

     109,734        41,672        298,460        128,157   
                                

Non-interest Income:

        

Deposit service fees

     26,822        30,844        83,951        88,787   

Loan related fees

     6,119        5,557        19,349        18,389   

Wealth and investment services

     6,220        6,160        18,273        17,991   

Mortgage banking activities

     1,658        1,406        1,947        5,445   

Increase in cash surrender value of life insurance policies

     2,677        2,692        7,867        7,949   

Gain on the exchange of trust preferreds for common stock

     —          —          —          24,336   

Gain on early extinguishment of subordinated notes

     —          —          —          5,993   

Net unrealized gain on securities classified as trading

     1,205        —          9,789        —     

Net gain (loss) on sale of investment securities

     1,027        (4,728     9,709        (13,863

Total other-than-temporary impairment losses on securities

     (5,314     (1,545     (14,445     (35,179

Portion of the loss recognized in other comprehensive income

     4,344        255        8,607        6,779   
                                

Net impairment loss recognized in earnings

     (970     (1,290     (5,838     (28,400

Other income

     2,510        3,517        14,757        7,024   
                                

Total non-interest income

     47,268        44,158        159,804        133,651   
                                

Non-interest Expense:

        

Compensation and benefits

     60,231        59,772        181,894        175,430   

Occupancy

     13,777        13,572        41,763        41,461   

Technology and equipment expense

     15,886        15,199        46,811        45,627   

Intangible assets amortization

     1,397        1,421        4,191        4,334   

Marketing

     4,634        3,802        14,651        10,104   

Professional and outside services

     4,038        3,628        10,206        10,806   

Deposit insurance

     5,882        5,942        19,128        24,491   

Litigation reserve and settlement

     2,800        —          22,476        —     

Other expenses

     21,076        23,750        69,892        62,926   
                                

Total non-interest expense

     129,721        127,086        411,012        375,179   
                                

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

     27,281        (41,256     47,252        (113,371

Income tax expense (benefit)

     4,597        (22,014     5,502        (51,143
                                

Income (loss) from continuing operations

     22,684        (19,242     41,750        (62,228

Income (loss) from discontinued operations, net of tax

     —          —          —          313   
                                

Consolidated net income (loss)

     22,684        (19,242     41,750        (61,915

Less: Net (loss) income attributable to non controlling interests

     (3     8        4        21   
                                

Net income (loss) attributable to Webster Financial Corporation

     22,687        (19,250     41,746        (61,936

Preferred stock dividends, accretion of preferred stock discount and gain on extinguishment

     (4,908     (6,850     (17,305     31,082   
                                

Net income (loss) available to common shareholders

   $ 17,779      $ (26,100   $ 24,441      $ (30,854
                                

Net income (loss) per common share:

        

Basic

        

Income (loss) from continuing operations

   $ 0.23      $ (0.39   $ 0.31      $ (0.55

Net income (loss) available to common shareholders

     0.23        (0.39     0.31        (0.54

Diluted

        

Income (loss) from continuing operations

     0.22        (0.39     0.30        (1.36

Net income (loss) available to common shareholders

     0.22        (0.39     0.30        (1.35

See accompanying Notes to Condensed Consolidated Financial Statements.

 

4


Table of Contents

 

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

 

     Nine months ended September 30, 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
Interests
     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

     —          —           —          11,431        —          (11,431     —           —     

Comprehensive income:

                  

Net (loss) income

     —          —           —          (61,936     —          —          21         (61,915

Other comprehensive income (loss), net of taxes:

                  

Net change in unrealized gain on securities available for sale

     —          —           —          —          —          84,172        —           84,172   

Net change in non-credit related other than temporary impairment on securities

     —          —           —          —          —          (3,928     —           (3,928

Amortization of unrealized loss on securities transferred to held to maturity

     —          —           —          —          —          200        —           200   

Net unrealized gain on derivative instruments

     —          —           —          —          —          1,110        —           1,110   

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

     —          —           —          —          —          1,646        —           1,646   
                                                                  

Other comprehensive income, net of taxes

     —          —           —          —          —          83,200        —           83,200   
                                                                  

Total comprehensive income, net of taxes

                     21,285   

Dividends paid on common stock of $.03 per share

     —          —           —          (1,736     —          —          —           (1,736

Dividends paid on Series A preferred stock $63.75 per share

     —          —           —          (10,757     —          —          —           (10,757

Dividends incurred on Series B preferred stock $37.50 per share

     —          —           —          (15,006     —          —          —           (15,006

Subsidiary preferred stock dividends $0.65 per share

     —          —           —          (646     —          —          —           (646

Net shares acquired related to employee share-based compensation plans

     —          —           —          —          (152     —          —           (152

Stock-based compensation expense

     —          —           1,612        —          —          —          —           1,612   

Accretion of preferred stock discount

     1,308        —           —          (1,308     —          —          —           —     

Restricted stock grants and expense

     —          —           7,414        222        (3,129     —          —           4,507   

Conversion of Series A preferred stock

     (168,500     60         48,906        58,792        —          —          —           (60,742

Extinguishment of Trust Preferred Securities

     —          53         36,780        —          —          —          —           36,833   

Issuance of common stock and warrants

       40         38,206        (479     695        —          —           38,462   

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

     —          —           (24     —          —          —          —           (24
                                                                  

Balance, September 30, 2009

   $ 449,134      $ 719       $ 866,381      $ 762,452      $ (156,811   $ (34,141   $ 9,640       $ 1,897,374   
                                                                  

See accompanying Notes to Condensed Consolidated Financial Statements.

 

5


Table of Contents

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

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

 

 

 

     Nine months ended September 30, 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
Interests
     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

     —          —           —          41,746        —          —          4         41,750   

Other comprehensive income (loss), net of taxes:

                  

Net change in unrealized gain on securities available for sale

     —          —           —          —          —          26,369        —           26,369   

Net change in non-credit related other than temporary impairment on securities

     —          —           —          —          —          (2,754     —           (2,754

Amortization of unrealized loss on securities transferred to held to maturity

     —          —           —          —          —          262        —           262   

Net unrealized loss on derivative instruments

     —          —           —          —          —          (6,064     —           (6,064

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

     —          —           —          —          —          1,162        —           —   1,162   
                                                                  

Other comprehensive income, net of taxes

     —          —           —          —          —          18,975        —           18,975   
                                                                  

Total comprehensive income, net of taxes

                     60,725   

Dividends paid on common stock of $.03 per share

     —          —           —          (2,351     —          —          —           (2,351

Dividends paid on Series A preferred stock $63.75 per share

     —          —           —          (1,845     —          —          —           (1,845

Dividends incurred on Series B preferred stock $37.50 per share

     —          —           —          (12,125     —          —          —           (12,125

Redemption of Preferred Stock

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

Subsidiary preferred stock dividends $0.65 per share

     —          —           —          (647     —          —          —           (647

Exercise of stock options

     —          —           (426     —          749        —          —           323   

Net shares acquired related to employee share-based compensation plans

     —          —           —          —          (884     —          —           (884

Stock-based compensation expense

     —          —           975        (4,651     7,254        —          —           3,578   

Accretion of preferred stock discount

     1,054        —           —          (1,054     —          —          —           —     

Issuance of common stock

     —          —           88        (2,012     3,612        —          —           1,688   
                                                                  

Balance, September 30, 2010

   $ 324,798      $ 820       $ 1,008,377      $ 723,450      $ (151,180   $ (9,414   $ 9,645       $ 1,906,496   
                                                                  

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

 

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

     Nine months ended
September 30,
 

(In thousands)

   2010     2009  

Operating Activities:

    

Consolidated net income (loss)

   $ 41,750      $ (61,915

Income from discontinued operations, net of tax

     —          313   
                

Income from continuing operations Income (loss) from continuing operations

     41,750        (62,228

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

    

Provision for loan losses

     100,000        236,000   

Deferred tax benefit

     5,584        (543

Depreciation and amortization

     67,423        46,951   

Gain on early extinguishment of subordinated notes

     —          (4,504

Gain on exchange of trust preferred securities for common stock

     —          (24,336

Stock-based compensation

     3,578        6,119   

Foreclosed and repossessed asset write-downs

     5,110        8,354   

Write-down of premises and equipment

     135        661   

Loss on write-down of investments to fair value

     5,838        28,400   

Gain on fair value adjustment of direct investments

     (1,264     —     

Loss on fair value adjustment of derivative instruments

     2,504        —     

Net (gain) loss on the sale of investment securities

     (9,709     13,863   

Net gain on assets classified as trading

     (9,789     —     

Net (increase) decrease in trading securities

     (202     76   

Increase in cash surrender value of life insurance policies

     (7,867     (7,949

Gain from life insurance policies

     (1,972     (1,106

Net decrease (increase) in loans held for sale

     (496     (12,481

Net decrease (increase) in accrued interest receivable and other assets

     56,797        (84,449

Net increase (decrease) in accrued expenses and other liabilities

     27,975        (32,115
                

Net cash provided by operating activities

     285,395        110,713   
                

Investing Activities:

    

Net decrease (increase) in interest-bearing deposits

     325,055        (338,464

Purchases of available for sale securities

     (929,273     (1,236,643

Proceeds from maturities and principal payments of available for sale securities

     482,170        174,989   

Proceeds from sales of available for sale securities

     341,059        417,317   

Purchases of held-to-maturity securities

     (836,094     (355,801

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

     389,531        375,913   

Purchases of FHLB and FRB stock

     (3,000     (6,000

Net (increase) decrease in loans

     (12,755     467,747   

Proceeds from life insurance policies

     2,237        2,056   

Proceeds from sale of foreclosed properties

     21,195        24,548   

Proceeds from sale of premises and equipment

     675        —     

Purchases of premises and equipment

     (10,873     (21,967
                

Net cash used for investing activities

     (230,073     (496,305
                

Financing Activities:

    

Net (decrease) increase in deposits

     (58,092     1,730,915   

Proceeds from Federal Home Loan Bank advances

     749,000        9,452,286   

Repayments of Federal Home Loan Bank advances

     (819,320     (10,121,767

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

     192,718        (697,501

Redemption of preferred stock

     (100,000     —     

Conversion of Series A Preferred Stock

     —          (58,975

Repayment of long-term debt

     —          (15,928

Issuance of Preferred Stock, net of issuance costs

     —          (24

Cash dividends paid to common shareholders

     (2,351     (1,736

Cash dividends paid to preferred shareholders of consolidated affiliate

     (647     (646

Cash dividends paid to preferred shareholders

     (13,970     (25,426

Exercise of stock options

     323        —     

Common stock issued

     1,688        38,462   

Common stock repurchased

     (884     (152
                

Net cash (used for) provided by financing activities

     (51,535     299,508   
                

Cash Flows from Discontinued Operations:

    

Operating Activities

     —          313   
                

Net cash provided by discontinued operations

     —          313   
                

Net increase (decrease) in cash and due from banks

     3,787        (85,771

Cash and due from banks at beginning of period

     171,184        259,208   
                

Cash and due from banks at end of period

   $ 174,971      $ 173,437   
                

Supplemental disclosure of cash flow information:

    

Interest paid

   $ 134,711      $ 204,580   

Income taxes paid

     15,009        2,805   

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 repossessed assets

     30,184        40,400   

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, commercial real estate lending, health savings accounts and, prior to November 2009, insurance premium financing (“BIC”) on a national 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 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 value of financial instruments, the deferred tax asset valuation allowance, status of contingencies 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, change in non-credit related other than temporary impairment 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. Comprehensive income for the nine months ended September 30, 2010 and 2009 is reported in the accompanying condensed consolidated statements of shareholders’ equity.

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

 

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There have been no other changes to our significant accounting policies that were disclosed in the 2009 Form 10-K.

Accounting Standards Updates

ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures About Fair Value Measurements.” ASU 2010-06 requires expanded disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information about purchases, sales, issuances and settlements. ASU 2010-06 further clarifies that (i) fair value measurement disclosures should be provided for each class of assets and liabilities (rather than major category), which would generally be a subset of assets or liabilities within a line item in the statement of financial position and (ii) companies should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. The disclosures related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy will be required for the Company beginning January 1, 2011. The remaining disclosure requirements and clarifications made by ASU 2010-06 became effective for the Company on January 1, 2010. See Note 13 – Fair Value Measurements.

ASU No. 2010-11, “Derivatives and Hedging (Topic 815) - Scope Exception Related to Embedded Credit Derivatives.” ASU 2010-11 clarifies that the only form of an embedded credit derivative that is exempt from embedded derivative bifurcation requirements are those that relate to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The provisions of ASU 2010-11 became effective for the Company on July 1, 2010 and did not have a significant impact on the Company’s Condensed Consolidated Financial Statements.

ASU No. 2010-18,”Receivables (Topic 310) - Effect of a Loan Modification When the Loan is Part of a Pool That is Accounted for as a Single Asset.” ASU 2010-18 clarifies the accounting for acquired loans that have evidence of deterioration in credit quality since origination (referred to as “Subtopic 310-30 Loans”). An entity may not apply troubled debt restructuring (“TDR”) accounting guidance to individual Subtopic 310-30 Loans that are part of a pool, even if the modification of those loans would otherwise be considered a troubled debt restructuring. Once a pool is established, individual loans should not be removed from the pool unless the entity sells, forecloses, or writes off the loan. Entities would continue to consider whether the pool of loans is impaired if expected cash flows for the pool change. Subtopic 310-30 Loans that are accounted for individually would continue to be subject to TDR accounting guidance. A one-time election to terminate accounting for loans as a pool, which may be made on a pool-by-pool basis, is provided upon adoption of ASU 2010-18. ASU 2018-10 is effective for the period ending September 30, 2010. Adoption of this ASU did not significantly impact the Company’s Condensed Consolidated Financial Statements.

ASU No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” On July 21, 2010, the FASB issued ASU No. 2010-20 which requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables by disclosing an evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Under this statement, allowance for credit losses and fair value are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and nonaccrual status are to be presented by class of financing receivable. Disclosure of the nature and extent, the financial impact and segment information of troubled debt restructurings will also be required. The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolio’s risk and performance. ASU 2010-20 will be effective for the Company’s consolidated financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period will be required for the Company’s consolidated financial statements that include periods beginning on or after January 1, 2011.

 

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NOTE 2: Investment Securities

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

 

     September 30, 2010  
            Recognized in OCI            Not Recognized in OCI        
            Gross
unrealized
gains
     Gross
unrealized
losses
           Gross
unrealized
gains
     Gross
unrealized
losses
       
     Amortized
cost
          Carrying
value
          Fair value  

Available for Sale:

                  

U.S. Treasury Bills

   $ 200       $ —         $ —        $ 200       $ —         $ —        $ 200   

Agency notes - GSE

     130,080         102         (34     130,148         —           —          130,148   

Agency collateralized mortgage obligations (“CMOs”) - GSE

     905,669         18,983         (524     924,128         —           —          924,128   

Pooled trust preferred securities (a)

     68,252         2,604         (17,245     53,611         —           —          53,611   

Single issuer trust preferred securities

     50,815         —           (10,070     40,745         —           —          40,745   

Equity securities-financial institutions (b)

     6,510         378         (440     6,448         —           —          6,448   

Mortgage-backed securities - GSE

     761,537         36,995         —          798,532         —           —          798,532   

Mortgage-backed securities - Private Label

     299,058         18,526         (13,016     304,568         —           —          304,568   
                                                            

Total available for sale

   $ 2,222,121       $ 77,588       $ (41,329   $ 2,258,380       $ —         $ —        $ 2,258,380   
                                                            

Held to Maturity:

                  

Municipal bonds and notes

   $ 668,113       $ —         $ —        $ 668,113       $ 25,557       $ (476   $ 693,194   

Agency collateralized mortgage obligations (“CMOs”) - GSE

     680,270         —           —          680,270         16,802         —          697,072   

Mortgage-backed securities - GSE

     1,707,773         —           —          1,707,773         93,136         (115     1,800,794   

Mortgage-backed securities - Private Label

     41,359         —           —          41,359         1,353         —          42,712   
                                                            

Total held to maturity

   $ 3,097,515       $ —         $ —        $ 3,097,515       $ 136,848       $ (591   $ 3,233,772   
                                                            
   $ 5,319,636       $ 77,588       $ (41,329   $ 5,355,895       $ 136,848       $ (591   $ 5,492,152   
                                                            

 

(a) Amortized cost is net of $38.3 million of credit related other-than-temporary impairments at September 30, 2010.
(b) Amortized cost is net of $21.7 million of other-than-temporary impairments at September 30, 2010.

 

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     December 31, 2009  
            Recognized in OCI            Not Recognized in OCI        
            Gross
unrealized
gains
     Gross
unrealized
losses
           Gross
unrealized
gains
     Gross
unrealized
losses
       
     Amortized
cost
          Carrying
value
          Fair value  

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   
                                                            
   $ 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 $2.7 billion at September 30, 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 September 30, 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

   $ 80,279       $ 80,382       $ 8,967       $ 8,966   

Due after one year through five years

     50,000         49,966         3,129         3,172   

Due after five years through ten years

     45,318         38,498         361,504         382,838   

Due after ten years

     2,040,014         2,083,086         2,723,915         2,838,796   
                                   

Totals

   $ 2,215,611       $ 2,251,932       $ 3,097,515       $ 3,233,772   
                                   

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 September 30, 2010, the Company had $741.9 million of callable securities in its investment portfolio.

At September 30, 2010 and December 31, 2009, the Company had no investments in obligations of individual states, counties, or municipalities, which exceed 10% of consolidated 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

 

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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 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 non-credit related impairment charge of a debt security is recognized as a loss in non-interest income in the Consolidated Statement of Operations. The remaining impairment 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 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 September 30, 2010.

 

            September 30, 2010  
            Less Than Twelve Months     Twelve Months or Longer     Total  

(Dollars in thousands)

   # of
Holdings
     Fair Value      Unrealized
Losses
    Fair Value      Unrealized
Losses
    Fair Value      Unrealized
Losses
 

Available for Sale:

                  

Agency notes - GSE

     1       $ 49,967       $ (34   $ —         $ —        $ 49,967       $ (34

Agency CMOs - GSE

     2         77,079         (524     —           —          77,079         (524

Pooled trust preferred securities

     10         45,166         (14,408     2,701         (2,837     47,867         (17,245

Single issuer trust preferred securities

     9         —           —          40,745         (10,070     40,745         (10,070

Equity securities

     34         4,650         (440     —           —          4,650         (440

Mortgage-backed securities-Private Label

     4         —           —          71,318         (13,016     71,318         (13,016
                                                            

Total available for sale

     60       $ 176,862       $ (15,406   $ 114,764       $ (25,923   $ 291,626       $ (41,329
                                                            

Held to maturity:

                  

Municipal bonds and notes

     32       $ 12,605       $ (61   $ 13,074       $ (415   $ 25,679       $ (476

Mortgage-backed securities-GSE

     2         68,866         (115     —           —          68,866         (115
                                                            

Total held to maturity

     34       $ 81,471       $ (176   $ 13,074       $ (415   $ 94,545       $ (591
                                                            

Total investment securities

     94       $ 258,333       $ (15,582   $ 127,838       $ (26,338   $ 386,171       $ (41,920
                                                            

 

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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 December 31, 2009.

 

            December 31, 2009  
            Less Than Twelve
Months
    Twelve Months or
Longer
    Total  

(Dollars in thousands)

   # of
Holdings
     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
                                                            

The following summarizes, by investment security type, the basis for evaluating if the applicable investment securities within the Company’s available for sale portfolio were other-than-temporarily impaired at September 30, 2010.

Trust Preferred Securities – Pooled Issuers – At September 30, 2010, the fair value of the pooled trust preferred securities was $53.6 million, a decrease of $17.1 million from the fair value of $70.7 million at December 31, 2009. The gross unrealized loss of $17.2 million, at September 30, 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 three and nine months ended September 30, 2010, respectively, the Company recognized $1.0 million and $5.8 million in credit related OTTI for these securities, reflective of payment deferrals and credit deterioration of the underlying collateral. Non credit related OTTI of $4.3 million and $8.6 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 and nine months ended September 30, 2010, respectively. 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 preferred 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 the time of purchase. Other factors considered include an analysis of excess subordination and temporary interest shortfall coverage. Based on the valuation analysis as of September 30, 2010, management expects to fully recover the remaining amortized cost of those securities not deemed to be other-than-temporarily impaired. However, additional interest deferrals, defaults, or ratings changes could result in future OTTI charges.

 

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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

 

             Amortized      Unrealized     Fair      Lowest Credit
Ratings as of
September 30,
    

Total

Other-Than-
Temporary
Impairment thru

    % of
Performing
Bank/
Insurance
    Current
Deferrals/
Defaults
(As a % of
Original
 

Deal Name (d)

   Class      Cost (b)      Gains      (Losses)     Value      2010 (a)      September 30, 2010     Issuers     Collateral)  
(Dollars in thousands)                                                            

Security B

     C       $ 920       $ 129       $ —        $ 1,049         CCC       $ (4,094     94.1     9.9

Security E

     B         2,140         —           (138     2,002         C         (7,909     71.4        29.2   

Security F-1

     C         2,219         2,475         —          4,694         C         (10,850     83.7        22.1   

Security F-2

     C         619         —           (399     220         C         —          83.7        22.1   

Security G (d)

     B         1,986         —           (955     1,031         CC         (4,994     66.2        28.7   

Security H (c) (d)

     B         3,483         —           (1,654     1,829         B         (352     100.0        —     

Security I (c) (d)

     B         4,463         —           (2,120     2,343         CCC         (365     94.1        9.9   

Security J

     B         5,252         —           (2,654     2,598         CCC         (806     90.6        11.5   

Security K (d)

     A         7,309         —           (538     6,771         CCC         (2,040     69.9        32.6   

Security L (c) (d)

     B         8,716         —           (4,294     4,422         B         (867     100.0        6.6   

Security M (d)

     A         7,346         —           (1,159     6,187         D         (4,942     58.2        42.5   

Security N (c) (d)

     A         23,799         —           (3,334     20,465         A         (1,104     90.6        11.5   
                                                     
      $ 68,252       $ 2,604       $ (17,245   $ 53,611          $ (38,323    
                                                     

 

(a) The credit rating relected as of September 30, 2010 is the lowest rating among those provided by Moody’s, S&P and Fitch.
(b) For the securities deemed impaired, the amortized cost reflects previous OTTI recognized in earnings.
(c) Credit-related OTTI of $1.0 million was recognized on these 4 securities during the three months ended September 30, 2010.
(d) During the nine months ended September 30, 2010, OTTI of $5.8 million was recognized on these seven securities, in addition to Security D, which was sold during the three months ended June 30, 2010. Security A was sold during the three months ended September 30, 2010.

Trust Preferred Securities – Single Issuers – At September 30, 2010, the fair value of the single issuer trust preferred portfolio was $40.7 million, an increase of $2.0 million from the fair value of $38.7 million at December 31, 2009. The gross unrealized loss of $10.1 million at September 30, 2010 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 in their ability to service debt and indications of stabilization in their capital structures. Based on the review of the qualitative and quantitative factors presented above, these securities were not deemed to be other-than-temporarily impaired at September 30, 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.

 

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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
     Unrealized
Losses
    Fair
Value
     Lowest Credit
Ratings as of
September 30,
2010
     Total
Other-Than-
Temporary
Impairment
thru September 30,
2010
 
(Dollars in thousands)                                  

Security B

   $ 6,807       $ (1,554   $ 5,253         BB       $ —     

Security C

     8,580         (1,425     7,155         BBB         —     

Security D

     9,540         (2,353     7,187         BB         —     

Security E

     11,657         (2,025     9,632         BBB         —     

Security F

     14,231         (2,713     11,518         BBB         —     
                                     
   $ 50,815       $ (10,070   $ 40,745          $ —     
                                     

 

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

Agency notes – GSE – There were $34 thousand in unrealized losses in the Company’s investment in agency notes at September 30, 2010 compared to $196 thousand at December 31, 2009. The contractual cash flows for these investments are performing as expected. With lower overall yields and higher prices during the quarter ended September 30, 2010, in aggregate, these securities are at unrealized gains.

Agency CMOs – GSE – There were $0.5 million in unrealized losses in the Company’s investment in agency CMOs at September 30, 2010 compared to $2.1 million at December 31, 2009. The contractual cash flows for these investments are performing as expected. The Company does not consider these investments to be other-than-temporarily impaired at September 30, 2010.

Equity securities – The unrealized losses on the Company’s investment in equity securities decreased to $0.4 million at September 30, 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 ($5.2 million of the total fair value at September 30, 2010) and auction rate preferred securities ($1.3 million of the total fair value at September 30, 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 September 30, 2010.

Mortgage-backed securities – GSE – There were no unrealized losses in the Company’s investment in residential mortgage-backed securities issued by the GSEs at September 30, 2010 compared to $0.8 million in unrealized losses 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 buyout programs initiated in 2010. With lower overall yields and higher prices during the third quarter ended September 30, 2010, these securities are all at unrealized gains.

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 $13.0 million at September 30, 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, and the recent overall drop in yields and higher prices during the third quarter ended September 30, 2010. 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 September 30, 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 September 30, 2010:

Municipal bonds and notes – The unrealized losses on the Company’s investment in municipal bonds and notes decreased to $0.5 million at September 30, 2010 from $4.0 million at December 31, 2009. This decrease 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

 

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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 September 30, 2010.

Agency collateralized mortgage obligations – GSE – There were no unrealized losses on the Company’s investment in agency CMOs at September 30, 2010. The contractual cash flows for these investments are performing as expected. With lower overall yields and higher prices during the third quarter ended September 30, 2010, these securities are all at unrealized gains.

Mortgage-backed securities – GSE – The unrealized losses on the Company’s investment in residential mortgage-backed securities issued by the GSEs decreased to $0.1 million at September 30, 2010 from $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 buyout programs initiated in 2010. 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 September 30, 2010.

Mortgage-backed securities – Private Label – There were no unrealized losses on the Company’s investment in residential mortgage-backed securities issued by entities other than GSEs at September 30, 2010 compared to $0.3 million at December 31, 2009. These securities carry AAA ratings and are currently performing as expected.

There were no significant credit downgrades on held to maturity securities during the three and nine months ended September 30, 2010, which are currently performing as anticipated. 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

For the three and nine months ended September 30, 2010 and 2009, proceeds from sale of available for sale securities were $73.8 million and $341.0 million and $7.0 million and $417.3 million, respectively. Gross gains realized from the sale of available for sale securities were $1.2 million and $0.5 million, and $9.9 million and $6.5 million for the three and nine months ended September 30, 2010 and 2009, respectively. Gross losses realized from the sale available for sale securities were $0.1 million and $5.2 million, and $0.1 million and $20.3 million for the three and nine months ended September 30, 2010 and 2009, respectively. When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale.

The following tables summarize the impact of net realized gains and losses on sales of securities, excluding trading securities, and the impact of the recognition of other-than-temporary impairments for the three and nine months ended September 30, 2010 and 2009.

 

     Three months ended September 30,  
     2010     2009  

(In thousands)

   Gains      Losses     OTTI
Charges
    Net     Gains      Losses     OTTI
Charges
    Net  

Available for sale:

                  

Agency notes - GSE

   $ —         $ —        $ —        $ —        $ —         $ —        $ —        $ —     

Agency CMOs - GSE

     1,173         —          —          1,173        —           —          —          —     

Pooled trust preferred securities

     —           (146     (970     (1,116     11         (4,821     (1,246     (6,056

Single issuer trust preferred securities

     —           —          —          —          —           —          —          —     

Equity securities

     —           —          —          —          476         (394     (44     38   

Mortgage-backed securities-GSE

     —           —          —          —          —           —          —          —     

Mortgage-backed securities-Private Label

     —           —          —          —          —           —          —          —     
                                                                  

Total available for sale

   $ 1,173       $ (146   $ (970   $ 57      $ 487       $ (5,215   $ (1,290   $ (6,018
                                                                  

 

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     Nine months ended September 30,  
     2010     2009  

(In thousands)

   Gains      Losses     OTTI
Charges
    Net     Gains      Losses     OTTI
Charges
    Net  

Available for sale:

                  

Agency notes - GSE

   $ —         $ —        $ —        $ —        $ —         $ —        $ —        $ —     

Agency CMOs - GSE

     1,173         —          —          1,173        —           —          —          —     

Pooled trust preferred securities

     340         (146     (5,772     (5,578     11         (16,732     (24,856     (41,577

Single issuer trust preferred securities

     —           —          —          —          —           —          —          —     

Equity securities

     —           —          (66     (66     779         (3,616     (3,544     (6,381

Mortgage-backed securities-GSE

     8,342         —          —          8,342        5,696         —          —          5,696   

Mortgage-backed securities-Private Label

     —           —          —          —          —           —          —          —     
                                                                  

Total available for sale

   $ 9,855       $ (146   $ (5,838   $ 3,871      $ 6,486       $ (20,348   $ (28,400   $ (42,262
                                                                  

The following is a roll forward of the amount of credit related OTTI recognized in earnings for the three and nine months ended September 30, 2010:

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
     2010     2009     2010     2009  

Balance of credit related OTTI, beginning of period

   $ 39,220      $ 105,871      $ 43,492      $ 173,496   

Additions for credit related OTTI not previously recognized

     970        1,246        5,772        24,856   

Reduction for securities sold

     (1,867     (47,439     (10,941     (121,088

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

     —          —          —          (17,586
                                

Subtotal of additions and reductions, net

     (897     (46,193     (5,169     (113,818