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Webster Financial 10-Q 2013

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
WBS-3-31-2013 10Q
 
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, 2013
or
¨    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-31486
_______________________________________________________________________________
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 and zip code of principal executive offices)
 
(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 Website, 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.
Large accelerated filer
þ
 
Accelerated filer
¨
 
Non-accelerated filer
¨
 
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    ¨  Yes    þ  No
The number of shares of common stock, par value $.01 per share, outstanding as of April 30, 2013 was 90,256,724.


 




INDEX

 


i


PART I. – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
March 31,
2013
December 31, 2012
(In thousands, except share data)
(Unaudited)
 
Assets:
 
 
Cash and due from banks
$
118,657

$
252,283

Interest-bearing deposits
51,352

98,205

Securities available for sale, at fair value
3,318,238

3,136,160

Securities held-to-maturity (fair value of $3,242,051 and $3,264,718)
3,111,169

3,107,529

Federal Home Loan Bank and Federal Reserve Bank stock, at cost
158,878

155,630

Loans held for sale
96,706

107,633

Loans and leases
12,002,032

12,028,696

Allowance for loan and lease losses
(167,840
)
(177,129
)
Loans and leases, net
11,834,192

11,851,567

Deferred tax asset, net
55,656

68,681

Premises and equipment, net
127,609

134,562

Goodwill
529,887

529,887

Other intangible assets, net
9,028

10,270

Cash surrender value of life insurance policies
420,562

418,293

Prepaid FDIC premiums
16,644

16,323

Accrued interest receivable and other assets
261,960

259,742

Total assets
$
20,110,538

$
20,146,765

Liabilities and shareholders' equity:
 
 
Deposits:
 
 
Non-interest-bearing
$
2,849,355

$
2,881,131

Interest-bearing
11,774,527

11,649,704

Total deposits
14,623,882

14,530,835

Securities sold under agreements to repurchase and other short-term borrowings
1,033,767

1,076,160

Federal Home Loan Bank advances
1,902,563

1,827,612

Long-term debt
230,709

334,276

Accrued expenses and other liabilities
191,486

284,352

Total liabilities
17,982,407

18,053,235

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 E issued and outstanding - 5,060 shares
122,710

122,710

Common stock, $.01 par value; Authorized - 200,000,000 shares:
 
 
Issued - 93,344,507 and 90,735,596 shares
933

907

Paid-in capital
1,125,095

1,145,620

Retained earnings
993,889

1,000,427

Less: Treasury stock, at cost (3,748,479 and 5,772,006 shares)
(112,524
)
(172,807
)
Accumulated other comprehensive loss
(30,911
)
(32,266
)
Total shareholders' equity
2,128,131

2,093,530

Total liabilities and shareholders' equity
$
20,110,538

$
20,146,765

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

1


WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

 
Three months ended March 31,
(In thousands, except per share data)
2013
2012
Interest Income:
 
 
Interest and fees on loans and leases
$
121,061

$
120,741

Taxable interest and dividends on securities
42,257

45,888

Non-taxable interest on securities
6,128

6,980

Loans held for sale
637

498

Total interest income
170,083

174,107

Interest Expense:
 
 
Deposits
12,850

16,056

Securities sold under agreements to repurchase and other short-term borrowings
5,055

4,434

Federal Home Loan Bank advances
4,539

4,564

Long-term debt
1,843

5,685

Total interest expense
24,287

30,739

Net interest income
145,796

143,368

Provision for loan and lease losses
7,500

4,000

Net interest income after provision for loan and lease losses
138,296

139,368

Non-interest Income:
 
 
Deposit service fees
23,994

23,363

Loan related fees
4,585

4,869

Wealth and investment services
7,766

7,221

Mortgage banking activities
7,031

4,383

Increase in cash surrender value of life insurance policies
3,384

2,517

Net gain on sale of investment securities
106


Other income
1,412

1,633

Total non-interest income
48,278

43,986

Non-interest Expense:
 
 
Compensation and benefits
66,050

68,619

Occupancy
12,879

12,882

Technology and equipment
15,353

15,582

Intangible assets amortization
1,242

1,397

Marketing
4,811

4,100

Professional and outside services
2,150

2,692

Deposit insurance
5,174

5,709

Other expense
17,876

16,832

Total non-interest expense
125,535

127,813

Income before income tax expense
61,039

55,541

Income tax expense
18,922

16,603

Net income
42,117

38,938

Preferred stock dividends
(2,886
)
(615
)
Net income available to common shareholders
$
39,231

$
38,323


Net income per common share:
 
 
 
 
 
Basic
$
0.46

$
0.44

 
 
 
Diluted
0.44

0.42

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


2


WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
 
Three months ended March 31,
(In thousands)
2013
2012
Net income
$
42,117

$
38,938

Other comprehensive income, net of tax
1,355

13,759

Comprehensive income
$
43,472

$
52,697

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


3


WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
 
 
Three months ended March 31, 2013
(In thousands, except per share data)
Preferred
Stock
Common
Stock
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Total
Equity
Balance at December 31, 2012
$
151,649

$
907

$
1,145,620

$
1,000,427

$
(172,807
)
$
(32,266
)
$
2,093,530

Net income



42,117



42,117

Other comprehensive income, net of tax





1,355

1,355

Dividends paid on common stock of $0.10 per share



(8,504
)


(8,504
)
Dividends paid on Series A preferred stock $21.25 per share



(615
)


(615
)
Dividends paid on Series E preferred stock $448.89 per share



(2,271
)


(2,271
)
Common stock warrants repurchased


(30
)



(30
)
Net shares acquired related to employee share-based compensation plans




(92
)

(92
)
Stock-based compensation, net of tax effects


829

(1,010
)
2,678


2,497

Issuance of common stock

26

(21,324
)
(36,255
)
57,697


144

Balance at March 31, 2013
$
151,649

$
933

$
1,125,095

$
993,889

$
(112,524
)
$
(30,911
)
$
2,128,131

 
 
 
 
 
 
 
 
 
Three months ended March 31, 2012
(In thousands, except per share data)
Preferred
Stock

Common
Stock

Paid-In
Capital

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Loss

Total
Equity

Balance at December 31, 2011
$
28,939

$
907

$
1,145,346

$
865,427

$
(134,641
)
$
(60,204
)
$
1,845,774

Net income



38,938



38,938

Other comprehensive income, net of tax





13,759

13,759

Dividends paid on common stock of $0.05 per share



(4,377
)


(4,377
)
Dividends paid on Series A preferred stock $21.25 per share



(615
)


(615
)
Exercise of stock options


(526
)

790


264

Net shares acquired related to employee share-based compensation plans




(1,643
)

(1,643
)
Stock-based compensation, net of tax effects


1,222

(1,342
)
2,863


2,743

Issuance of common stock


99




99

Balance at March 31, 2012
$
28,939

$
907

$
1,146,141

$
898,031

$
(132,631
)
$
(46,445
)
$
1,894,942

 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

4


WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 
Three months ended March 31,
(In thousands)
2013
2012
Operating Activities:
 
 
Net income
$
42,117

$
38,938

Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
 
 
Provision for loan and lease losses
7,500

4,000

Deferred tax expense
12,256

17,310

Depreciation and amortization
26,827

25,646

Stock-based compensation
2,526

1,735

Excess tax benefits from stock-based compensation
(20
)
(1,022
)
Gain on sale and write-down of foreclosed and repossessed assets
(284
)
(784
)
Write-down of premises and equipment
9


Loss on sale of premises and equipment
74

104

Loss on fair value adjustment of private equities
264

760

Gain on fair value adjustment of derivative instruments
(52
)
(156
)
Net gain on the sale of investment securities
(106
)

Increase in cash surrender value of life insurance policies
(3,384
)
(2,517
)
Gain from life insurance policies
(653
)

Gain on sale of loans held for sale
(7,031
)
(4,383
)
Loans originated for sale, net of proceeds from loans sold
17,710

2,159

Net decrease (increase) in accrued interest receivable and other assets
678

(11,381
)
Net decrease in accrued expenses and other liabilities
(32,628
)
(35,598
)
Net cash provided by operating activities
65,803

34,811

Investing Activities:
 
 
Net decrease in interest-bearing deposits
46,853

18,141

Purchases of available for sale securities
(482,860
)
(436,757
)
Proceeds from maturities and principal payments of available for sale securities
216,013

174,454

Proceeds from sales of available for sale securities
11,771


Purchases of held-to-maturity securities
(215,783
)
(280,945
)
Proceeds from maturities and principal payments of held-to-maturity securities
207,321

171,539

Net (purchase) sale of Federal Home Loan Bank and Federal Reserve Board stock
(3,248
)
1,279

Net decrease (increase) in loans
6,836

(117,970
)
Proceeds from life insurance policies
1,768


Proceeds from the sale of foreclosed properties and repossessed assets
1,748

2,307

Proceeds from the sale of premises and equipment
226

516

Purchases of premises and equipment
(1,758
)
(2,477
)
Net cash used for investing activities
(211,113
)
(469,913
)
Financing Activities:
 
 
Net increase in deposits
93,047

288,472

Proceeds from Federal Home Loan Bank advances
900,000

800,000

Repayments of Federal Home Loan Bank advances
(825,043
)
(700,032
)
Net (decrease) increase in securities sold under agreements to repurchase and other short-term borrowings
(42,393
)
103,883

Repayment of long-term debt
(102,579
)
(74,901
)
Cash dividends paid to common shareholders
(8,504
)
(4,377
)
Cash dividends paid to preferred shareholders
(2,886
)
(615
)
Exercise of stock options

264

Excess tax benefits from stock-based compensation
20

1,022

Issuance of common stock
144

99

Common stock repurchased
(92
)
(1,643
)
Common stock warrants repurchased
(30
)

Net cash provided by financing activities
11,684

412,172

Net decrease in cash and due from banks
(133,626
)
(22,930
)
Cash and due from banks at beginning of period
252,283

195,957

Cash and due from banks at end of period
$
118,657

$
173,027

 
 
 
Supplemental disclosure of cash flow information:
 
 
Interest paid
$
23,828

$
32,023

Income taxes paid
6,929

3,814

Noncash investing and financing activities:
 
 
Transfer of loans and leases, net to foreclosed properties and repossessed assets
$
2,627

$
2,508

Transfer of loans from portfolio to loans-held-for-sale
248


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

5


NOTE 1: Summary of Significant Accounting Policies
Nature of Operations. Webster Financial Corporation (collectively, with its consolidated subsidiaries, “Webster” or the “Company”), is a bank holding company and financial holding company under the Bank Holding Company Act of 1956, as amended, headquartered in Waterbury, Connecticut and incorporated under the laws of Delaware in 1986. At March 31, 2013, Webster Financial Corporation's principal asset was all of the outstanding capital stock of Webster Bank, National Association (“Webster Bank”).
Webster, through Webster Bank and various non-banking financial services subsidiaries, delivers financial services to individuals, families and businesses throughout southern New England and into Westchester County, New York. Webster provides business and consumer banking, mortgage lending, financial planning, trust and investment services through banking offices, ATMs, telephone banking, mobile banking and its Internet website (www.websterbank.com). Webster Bank offers, through its HSA Bank division, health savings accounts on a nationwide basis. Webster also offers equipment financing, commercial real estate lending, and asset-based lending.
Basis of Presentation. The Condensed Consolidated Financial Statements include the accounts of Webster Financial Corporation and all other entities in which it has a controlling financial interest. 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 (“VIE”) under GAAP. 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 holder with the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities. The Company consolidates voting interest entities in which it has all or at least a majority of, the voting interest. VIEs are entities that lack one or more of the characteristics of a voting interest entity. A controlling financial interest in a VIE is present when the Company has both the power and ability to direct the activities of the VIE that most significantly impact the VIE's economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
The Company owns the common stock of trusts which have issued trust preferred securities. These trusts are VIEs in which the Company is not the primary beneficiary and therefore are not consolidated. The trusts’ only assets are junior subordinated debentures issued by the Company, which were acquired by the trusts using the proceeds from the issuance of the trust preferred securities and common stock. The junior subordinated debentures are included in long-term debt and the Company’s equity interests in the trusts are included in other assets in the accompanying Condensed Consolidated Balance Sheets. Interest expense on the junior subordinated debentures is reported in interest expense on long-term debt in the accompanying Condensed Consolidated Statements of Income. See Note 9 - Long-Term Debt.
Certain prior period amounts have been reclassified to conform to the current year's presentation. These reclassifications had no impact on the Company's consolidated financial position, results of operations or net change in cash or cash equivalents.
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 Condensed Consolidated Financial Statements. Actual results could differ from those estimates. The allowance for loan and lease losses, the fair value measurements of financial instruments and valuation of investments for other-than-temporary impairment (“OTTI”), the valuation of goodwill, the deferred tax asset valuation allowance and pension and other postretirement benefits, as well as the status of contingencies are particularly subject to change.
Cash Equivalents and Cash Flows. For the purposes of the Condensed Consolidated Statements of Cash Flows, cash equivalents include cash on hand and due from banks, interest-bearing deposits in the Federal Reserve Bank or other short-term money market investments. Webster classifies financial instruments with maturities of one year or less at the date of purchase as interest-bearing deposits. These deposits are carried at cost, which approximates fair value.
Cash flows from loans, either originated or acquired, are classified at that time according to management's original intent to either sell or hold the loan for the foreseeable future. When management's intent is to to sell the loan, the cash flows of that loan are presented as operating cash flows. When management's intent is to hold the loan for the foreseeable future, the cash flows of that loan are presented as investing cash flows.

6


Investment Securities. Investment securities are classified at the time of purchase as “available for sale”, or “held-to-maturity”. Classification is re-evaluated each quarter to ensure appropriate classification and to maintain consistency with corporate objectives. Debt securities held-to-maturity are those which Webster has the ability and intent to hold to maturity. Securities held-to-maturity are recorded at amortized cost. Amortized cost includes the amortization of premiums or accretion of discounts. Such amortization and accretion is included in interest income from securities. Securities classified as available for sale are recorded at fair value. Unrealized gains and losses, net of taxes, are calculated each reporting period and presented as a separate component of other comprehensive income (“OCI”). Securities transferred from available for sale to held-to-maturity are recorded at fair value at the time of transfer. The respective gain or loss is reclassified as a separate component of OCI and amortized as an adjustment to interest income over the remaining life of the security.
Investment securities are reviewed quarterly for OTTI. All securities classified as available for sale or held-to-maturity that are in an unrealized loss position are evaluated for OTTI. The evaluation considers several qualitative factors including the amount of the unrealized loss and the period of time the security has been in a loss position. If the Company intends to sell the security or, if it is more than likely 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 loss is recorded in non-interest income in the accompanying Condensed Consolidated Statements of Income. 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 would be recognized as a loss in non-interest income in the accompanying Condensed Consolidated Statements of Income. The remaining loss component would be recorded in 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 accompanying Condensed Consolidated Statements of Income.
The specific identification method is used to determine realized gains and losses on sales of securities.
Loans Held for Sale. Loans held for sale are primarily residential real estate mortgage loans. Loans typically are assigned this classification upon origination based on management's intent to sell when the loans are underwritten. Loans held for sale are carried at the lower of cost or fair value. Non-residential mortgage loans held for sale are carried at lower of cost or fair value and are valued on individual asset basis. Any cost amount in excess of fair value is recorded as a valuation allowance and recognized as a reduction of other income. Gains or losses on the sale of loans held for sale are included in non-interest income in the accompanying Condensed Consolidated Statements of Income. Direct loan origination costs and fees are deferred and are recognized at the time of sale.
Loans. Loans are stated at the principal amounts outstanding, net of charged off amounts and unamortized premiums and discounts and net of deferred loan fees and/or costs which are recognized as a yield adjustment using the interest method. These yield adjustments are amortized over the contractual life of the related loans adjusted for estimated prepayments when applicable. Interest on loans is credited to interest income as earned based on the interest rate applied to principal amounts outstanding. Loans are placed on non-accrual status when timely collection of principal and interest in accordance with contractual terms is doubtful. A loan is transferred to a non-accrual basis generally when principal or interest payments become 90 days delinquent, unless the loan is well secured and in process of collection, or sooner if management concludes circumstances indicate that the borrower may be unable to meet contractual principal or interest payments.
Accrual of interest is discontinued if the loan is placed on non-accrual status. Residential real estate and consumer loans are placed on non-accrual status at 90 days past due and a charge-off is recorded at 180 days if the loan balance exceeds the fair value of the collateral less costs to sell. All commercial, commercial real estate and equipment finance loans are subject to a detailed review by the Company’s credit risk team to determine accrual status.
When a loan is put on non-accrual status, unpaid accrued interest is reversed and charged against interest income. If ultimate repayment of a non-accrual loan is expected, any payments received are applied in accordance with contractual terms. If ultimate repayment is not expected on commercial, commercial real estate and equipment finance loans, any payment received on a non-accrual loan is applied to principal until the unpaid balance has been fully recovered. Any excess is then credited to interest income when received. If the Company determines, through a current valuation analysis, that principal can be repaid on residential real estate and consumer loans, interest payments may be taken into income as received or on a cash basis. Loans are removed from non-accrual status when they become current as to principal and interest or demonstrate a period of performance under contractual terms and, in the opinion of management, are fully collectible as to principal and interest.

7


Allowance for Credit Losses. The allowance for credit losses includes the allowance for loan and lease losses and the reserve for unfunded credit commitments.
Allowance for Loan and Lease Losses (“ALLL”). The allowance for loan and lease losses is a reserve established through a provision for loan and lease losses charged to expense, and represents management’s best estimate of probable losses that may be incurred within the existing loan portfolio as of the balance sheet date. The level of the allowance reflects management’s view of trends in loan loss activity, current loan portfolio quality and present economic, political and regulatory conditions. Portions of the allowance may be allocated for specific loans; however, the entire allowance is available for any loan that is charged off. A charge-off is recorded on a case-by-case basis when all or a portion of the loan is deemed to be uncollectible. Back-testing is performed to compare original estimated losses and actual observed losses, resulting in ongoing refinements. While management utilizes its best judgment based on the information available at the time, the ultimate adequacy of the allowance is dependent upon a variety of factors that are beyond the Company’s control, which include the performance of the Company’s loan portfolio, economic conditions, interest rate sensitivity and the view of the regulatory authorities regarding loan classifications.
The Company’s allowance for loan and lease losses consists of three elements: (i) specific valuation allowances established for probable losses on impaired loans; (ii) quantitative valuation allowances calculated using loan loss experience for like loans with similar characteristics and trends, adjusted, as necessary, to reflect the impact of current conditions; and (iii) qualitative factors determined based on general economic conditions and other qualitative risk factors both internal and external to the Company.
Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated on a pooled basis for smaller-balance homogeneous residential and consumer loans. Commercial, commercial real estate and equipment financing loans over a specific dollar amount and all troubled debt restructurings are evaluated individually for impairment. A loan identified as a TDR is considered an impaired loan for the entire term of the loan, with few exceptions. If a loan is impaired, a specific valuation allowance may be established, and the loan is reported net, at the present value of estimated future cash flows using the loan’s original interest rate or at the fair value of collateral less cost to sell if repayment is expected from collateral liquidation. Interest payments on non-accruing impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible. Factors considered by management in determining impairment include payment status, collateral value, discharged bankruptcy and the likelihood of collecting scheduled principal and interest payments. Consumer modified loans are analyzed for re-default probability which is factored into the impaired reserve calculation for ALLL. The current or weighted average (for multiple notes within a commercial borrowing arrangement) interest rate of the loan is used as the discount rate when the interest rate floats with a specified index. A change in terms or payments would be included in the impairment calculation.
Reserve for Unfunded Commitments. The reserve for unfunded commitments provides for probable losses inherent with funding the unused portion of legal commitments to lend. The unfunded reserve calculation includes factors that are consistent with ALLL methodology for funded loans using the loss given default, probability of default and a draw down factor applied to the underlying borrower risk and facility grades. The reserve for unfunded credit commitments is reported as a component of accrued expenses and other liabilities in the accompanying Condensed Consolidated Balance Sheets and associated provision expense is recorded as a component of other non-interest expense in the accompanying Condensed Consolidated Statements of Income.
Troubled Debt Restructurings. A modified loan is considered a TDR when two conditions are met: (1) the borrower is experiencing financial difficulties and (2) the modification constitutes a concession. The Company considers all aspects of the restructuring in determining whether a concession has been granted, including the debtor's ability to access market rate funds. In general, a concession exists when the modified terms of the loan are more attractive to the borrower than standard market terms. Modified terms are dependent upon the financial position and needs of the individual borrower. The Company does not employ modification programs for temporary or trial periods. The most common types of modifications include covenant modifications, forbearance and/or other concessions. If the modification agreement is violated, the loan is reevaluated to determine if it should be handled by the Company’s Restructuring and Recovery group for resolution, which may result in foreclosure. Loans for which the borrower has been discharged under Chapter 7 bankruptcy are considered collateral dependent TDRs and thus impaired at the date of discharge and charged down to the fair value of collateral less cost to sell.
The Company’s policy is to place all consumer loan TDRs on non-accrual status for a minimum period of six months. Commercial TDRs are evaluated on a case-by-case basis for determination of whether or not to place on non-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. Initially, all TDRs are reported as impaired. Generally, TDRs are classified as impaired loans and reported as TDRs for the remaining life of the loan. Impaired and TDR classification may be removed if the borrower demonstrates compliance with the modified terms for a minimum of six months and through one fiscal year-end and the restructuring agreement specifies a market rate of interest equal to that which would be provided to a borrower with similar credit at the time of restructuring. In the limited circumstances that a loan is removed from TDR classification it is the Company’s policy to continue to base its measure of loan impairment on the contractual terms specified by the loan agreement.

8


Transfers and Servicing of Financial Assets. Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is generally considered to have been surrendered when (1) the transferred assets are legally isolated from the Company or its consolidated affiliates, even in bankruptcy or other receivership, (2) the transferee has the right to pledge or exchange the assets with no conditions that constrain the transferee and provide more than a trivial benefit to the Company, and (3) the Company does not maintain the obligation or unilateral ability to reclaim or repurchase the assets.
The Company sells financial assets in the normal course of business, the majority of which are residential mortgage loan sales primarily to government-sponsored enterprises through established programs, commercial loan sales through participation agreements, and other individual or portfolio loan and securities sales. In accordance with the accounting guidance for asset transfers, the Company considers any ongoing involvement with transferred assets in determining whether the assets can be derecognized from the balance sheet. With the exception of servicing and certain performance-based guarantees, the Company’s continuing involvement with financial assets sold is minimal and generally limited to market customary representation and warranty clauses.
When the Company sells financial assets, it may retain servicing rights and/or other interests in the financial assets. The gain or loss on sale depends on the previous carrying amount of the transferred financial assets and the consideration received and any liabilities incurred in exchange for the transferred assets. Upon transfer, any servicing assets and other interests held by the Company are initially recognized at fair value.
Comprehensive Income. Comprehensive income includes all changes in shareholders’ equity during a period, except those resulting from transactions with shareholders. In addition to net income, Webster's components of other comprehensive income consists of the after-tax effect of changes in net unrealized gain/loss on securities available for sale, changes in net unrealized gain/loss on derivative instruments and changes in net actuarial gain/loss and prior service cost for defined benefit pension and other post-retirement benefit plans. Comprehensive income is reported in the accompanying Condensed Consolidated Statements of Shareholders' Equity and Condensed Consolidated Statements of Comprehensive Income.
Recently Adopted Accounting Standards Updates
ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities”. The ASU expands required disclosures of information related to the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments, in an effort to enhance comparability between financial statements prepared with GAAP and IFRS. The requirements include disclosure of net and gross positions in covered financial instruments and derivative instruments which are either (1) offset in accordance with ASC Sections 210-20-45 or 815-10-45, or (2) subject to an enforceable netting or other similar arrangement. The disclosures required by this ammendment were applied retrospectively for all comparative periods presented. The amendments did not have a material impact on the Company's financial statements.
ASU 2013-01- Balance Sheet (Topic 210): "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities". The ASU amends Update 2011-11 to clarify that the scope applies to derivatives, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to master netting or similar arrangements. Other types of financial assets and liabilities subject to master netting or similar arrangements are not subject to the disclosure requirements in Update 2011-11. The amendments are effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. The amendments did not have a material impact on the Company's financial statements.
ASU 2013-02- Comprehensive Income (Topic 220): "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income". The ASU requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. The amendments did not have a material impact on the Company's financial statements.



9


NOTE 2: Investment Securities
A summary of the amortized cost, carrying value, and fair value of Webster’s investment securities is presented below:

 
At March 31, 2013
 
 
Recognized in OCI
 
Not Recognized in OCI
 
(In thousands)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Available for sale:
 
 
 
 
 
 
 
Agency collateralized mortgage obligations (“CMOs”)
$
1,131,178

$
23,802

$
(101
)
$
1,154,879

$

$

$
1,154,879

Agency mortgage-backed securities (“MBS”)
1,270,845

17,636

(4,334
)
1,284,147



1,284,147

Commercial mortgage-backed securities (“CMBS”)
389,521

39,514

(1,352
)
427,683



427,683

Collateralized loan obligations ("CLOs")
248,070

829

(55
)
248,844



248,844

Pooled trust preferred securities (1)
45,923


(15,453
)
30,470



30,470

Single issuer trust preferred securities
51,225


(5,173
)
46,052



46,052

Corporate debt securities
110,702

6,420


117,122



117,122

Equity securities - financial institutions (2)
6,307

2,734


9,041



9,041

Total available for sale
$
3,253,771

$
90,935

$
(26,468
)
$
3,318,238

$

$

$
3,318,238

Held-to-maturity:
 
 
 
 
 
 
 
Agency CMOs
438,407



438,407

15,093


453,500

Agency MBS
1,931,928



1,931,928

75,576

(3,700
)
2,003,804

Municipal bonds and notes
528,788



528,788

28,186

(155
)
556,819

CMBS
199,516



199,516

15,796

(223
)
215,089

Private Label MBS
12,530



12,530

309


12,839

Total held-to-maturity
$
3,111,169

$

$

$
3,111,169

$
134,960

$
(4,078
)
$
3,242,051

 
 
 
 
 
 
 
 
Total investment securities
$
6,364,940

$
90,935

$
(26,468
)
$
6,429,407

$
134,960

$
(4,078
)
$
6,560,289


(1)
Amortized cost is net of $10.5 million of credit related other-than-temporary impairment at March 31, 2013.
(2)
Amortized cost is net of $21.3 million of other-than-temporary impairment at March 31, 2013.

10


 
At December 31, 2012
 
 
Recognized in OCI
 
Not Recognized in OCI
 
(In thousands)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Available for sale:
 
 
 
 
 
 
 
U.S. Treasury Bills
$
200

$

$

$
200

$

$

$
200

Agency CMOs
1,284,126

25,972

(92
)
1,310,006



1,310,006

Agency MBS
1,121,941

21,437

(1,098
)
1,142,280



1,142,280

CMBS
359,438

42,086

(3,493
)
398,031



398,031

CLOs
88,765


(225
)
88,540



88,540

Pooled trust preferred securities (1)
46,018


(19,811
)
26,207



26,207

Single issuer trust preferred securities
51,181


(6,766
)
44,415



44,415

Corporate debt securities
111,281

6,918


118,199



118,199

Equity securities - financial institutions (2)
6,232

2,054

(4
)
8,282



8,282

Total available for sale
$
3,069,182

$
98,467

$
(31,489
)
$
3,136,160

$

$

$
3,136,160

Held-to-maturity:
 
 
 
 
 
 
 
Agency CMOs
500,369



500,369

16,643

(8
)
517,004

Agency MBS
1,833,677



1,833,677

88,082

(474
)
1,921,285

Municipal bonds and notes
559,131



559,131

34,366

(110
)
593,387

CMBS
199,810



199,810

18,324


218,134

Private Label MBS
14,542



14,542

366


14,908

Total held-to-maturity
$
3,107,529

$

$

$
3,107,529

$
157,781

$
(592
)
$
3,264,718

 
 
 
 
 
 
 
 
Total investment securities
$
6,176,711

$
98,467

$
(31,489
)
$
6,243,689

$
157,781

$
(592
)
$
6,400,878


(1)
Amortized cost is net of $10.5 million of credit related other-than-temporary impairment at December 31, 2012.
(2)
Amortized cost is net of $21.3 million of other-than-temporary impairment at December 31, 2012.
The amortized cost and fair value of debt securities at March 31, 2013, by contractual maturity, are set forth below:
 
 
Available for Sale
 
Held-to-Maturity
(In thousands)
Amortized
Cost
Fair
Value
 
Amortized
Cost
Fair
Value
Due in one year or less
$
9,544

$
8,750

 
$
5,265

$
5,267

Due after one year through five years
105,581

111,062

 
43,616

46,413

Due after five through ten years
80,059

81,452

 
154,987

163,509

Due after ten years
3,052,280

3,107,933

 
2,907,301

3,026,862

Total debt securities
$
3,247,464

$
3,309,197

 
$
3,111,169

$
3,242,051

For the purposes of the maturity schedule, mortgage-backed securities and collateralized loan obligations, 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, 2013, the Company had $779.2 million carrying value of callable securities in its investment portfolio.
Securities with a carrying value totaling $2.5 billion at March 31, 2013 and December 31, 2012 were pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law. At March 31, 2013 and December 31, 2012, the Company had no investments in obligations of individual states, counties, or municipalities which exceed 10% of consolidated shareholders’ equity.

11


The following tables provide information on the gross unrealized losses and fair value of the Company’s investment securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment security category and length of time that individual investment securities have been in a continuous unrealized loss position:
 
At March 31, 2013
 
Less Than Twelve Months
Twelve Months or Longer
Total
(Dollars in thousands)
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
# of
Holdings
Fair
Value
Unrealized
Losses
Available for sale:
 
 
 
 
 
 
 
Agency CMOs
$
12,616

$
(20
)
$
12,786

$
(81
)
3

$
25,402

$
(101
)
Agency MBS
480,213

(4,263
)
6,809

(71
)
50

487,022

(4,334
)
CMBS
40,323

(98
)
23,154

(1,254
)
4

63,477

(1,352
)
CLOs
13,176

(55
)


2

13,176

(55
)
Pooled trust preferred securities


30,470

(15,453
)
8

30,470

(15,453
)
Single issuer trust preferred securities


46,052

(5,173
)
9

46,052

(5,173
)
Total available for sale
$
546,328

$
(4,436
)
$
119,271

$
(22,032
)
76

$
665,599

$
(26,468
)
Held-to-maturity:
 
 
 
 
 
 
 
Agency MBS
618,571

(3,700
)


32

618,571

(3,700
)
Municipal bonds and notes
4,521

(87
)
3,241

(68
)
11

7,762

(155
)
CMBS
15,595

(223
)


1

15,595

(223
)
Total held-to-maturity
$
638,687

$
(4,010
)
$
3,241

$
(68
)
44

$
641,928

$
(4,078
)
 
 
 
 
 
 
 
 
Total investment securities
$
1,185,015

$
(8,446
)
$
122,512

$
(22,100
)
120

$
1,307,527

$
(30,546
)
 
 
At December 31, 2012
 
Less Than Twelve Months
Twelve Months or Longer
Total
(Dollars in thousands)
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
# of
Holdings
Fair
Value
Unrealized
Losses
Available for sale:
 
 
 
 
 
 
 
Agency CMOs
$
69,936

$
(92
)
$

$

4

$
69,936

$
(92
)
Agency MBS
275,818

(1,098
)


28

275,818

(1,098
)
CMBS
14,947

(17
)
20,909

(3,476
)
2

35,856

(3,493
)
CLOs
44,775

(225
)


2

44,775

(225
)
Pooled trust preferred securities


26,207

(19,811
)
8

26,207

(19,811
)
Single issuer trust preferred securities


44,415

(6,766
)
9

44,415

(6,766
)
Equity securities-financial institutions
144

(4
)


1

144

(4
)
Total available for sale
$
405,620

$
(1,436
)
$
91,531

$
(30,053
)
54

$
497,151

$
(31,489
)
Held-to-maturity:
 
 
 
 
 
 
 
Agency CMOs
18,741

(8
)


1

18,741

(8
)
Agency MBS
161,057

(474
)


12

161,057

(474
)
Municipal bonds and notes
5,990

(51
)
2,858

(59
)
11

8,848

(110
)
Total held-to-maturity
$
185,788

$
(533
)
$
2,858

$
(59
)
24

$
188,646

$
(592
)
 
 
 
 
 
 
 
 
Total investment securities
$
591,408

$
(1,969
)
$
94,389

$
(30,112
)
78

$
685,797

$
(32,081
)

12


The following discussion summarizes, by investment security type, the basis for evaluating if the applicable investment securities within the Company’s available for sale portfolio were other-than-temporarily impaired at March 31, 2013. Unless otherwise noted for an investment security type, management does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell these securities before the recovery of its amortized cost.
Agency CMOs – There were $101 thousand in unrealized losses in the Company’s investment in agency CMOs at March 31, 2013 compared to $92 thousand at December 31, 2012. The unrealized loss is limited to three securities which have exhibited higher short term prepayment speeds than initially projected at purchase and an increase in interest rates this quarter. The contractual cash flows for these investments are performing as expected and there has been no change in the underlying credit quality. As such, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2013.
Agency mortgage-backed securities – There were $4.3 million in unrealized losses in the Company’s investment in residential mortgage-backed securities issued by government agencies at March 31, 2013, compared to $1.1 million in unrealized losses at December 31, 2012. The increase in unrealized losses was primarily due to the impact of higher interest rates on low coupon holdings in mortgage-backed securities which saw a slight decrease in price during the current quarter. The contractual cash flows for these investments are performing as expected. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2013.
Commercial mortgage-backed securities (CMBS)– The unrealized losses on the Company’s investment in commercial mortgage-backed securities issued by entities other than government agencies decreased to $1.4 million at March 31, 2013, from $3.5 million at December 31, 2012. This decrease in unrealized loss is primarily the result of a continued tightening in credit spreads during the three months ended March 31, 2013. Internal and external metrics are considered when evaluating potential OTTI on credit sensitive instruments. Internal stress tests are performed on individual bonds to monitor potential loss in either base or high stress scenarios. In addition, market analytics are performed to validate internal results. Contractual cash flows for the bonds continue to perform as expected. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2013.
Collateralized loan obligations (CLO)– There were $55 thousand in unrealized losses in the Company’s investment in collateralized loan obligations at March 31, 2013, compared to $225 thousand at December 31, 2012. This unrealized loss represents the bid/ask spread on two newly purchased positions in the portfolio. These securities have been stress tested and this unrealized loss does not signify any change in perceived credit quality. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2013.
Pooled trust preferred securities – At March 31, 2013, the fair value of the pooled trust preferred securities was $30.5 million, an increase of $4.3 million from the fair value of $26.2 million at December 31, 2012. The fair value decreased slightly as a result of principal payments received during the quarter and was offset by an improvement in credit spreads. The unrealized losses in the Company's investment in the pooled trust preferred securities were $15.5 million at March 31, 2013, a decrease of $4.3 million from a balance of $19.8 million at December 31, 2012. The decrease in unrealized losses was attributable to improvements in credit spreads and collateral performance along with incorporating the effect of higher projected LIBOR rates which serves to increase future interest cash flows.
For the three months ended March 31, 2013, the Company recognized no credit or non-credit related other-than-temporary impairment ("OTTI") for these securities. The pooled trust preferred portfolio consists of collateralized debt obligations (“CDOs”) containing predominantly bank and insurance company collateral that are investment grade and below investment grade. An internal model is used to value the securities due to the continued inactive market and illiquid nature of pooled trust preferred securities. The Company employs an internal CDO model for projection of future cash flows and discounting those cash flows to a net present value. Each underlying issuer in the pools is rated internally using the latest financial data on each institution with future deferrals, defaults and losses 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 March 31, 2013, 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.

13


The following table summarizes pertinent information that was considered by management in evaluating Trust Preferred Securities – Pooled Issuers for OTTI in the current reporting period: 
Trust Preferred Securities - Pooled Issuers
Deal Name
Class
Amortized
Cost (1)
Gross
Unrealized
Losses
Fair
Value
Lowest Credit
Ratings as of
March 31,
2013 (2)
Total OTTI thru
March 31,
2013
% of
Performing
Bank/
Insurance
Issuers

Deferrals/
Defaults
(As a % of
Current
Collateral)
(Dollars in thousands)
 
 
 
 
 
 
 
 
Security H
B
$
3,486

$
(1,328
)
$
2,158

B
$
(352
)
91.7
%
7.5
%
Security I
B
4,467

(1,708
)
2,759

CCC
(365
)
87.5
%
17.2
%
Security J
B
5,309

(2,244
)
3,065

CCC
(806
)
92.0
%
9.9
%
Security K
A
7,410

(2,638
)
4,772

CCC
(2,040
)
70.0
%
32.4
%
Security L
B
8,725

(3,436
)
5,289

CCC
(867
)
91.3
%
13.2
%
Security M
A
7,156

(3,326
)
3,830

D
(4,926
)
60.7
%
34.6
%
Security N
A
9,370

(773
)
8,597

A
(1,104
)
92.0
%
9.9
%
 
 
$
45,923

$
(15,453
)
$
30,470

 
$
(10,460
)
 
 

(1)For the securities previously deemed impaired, the amortized cost is reflective of previous OTTI recognized in earnings.
(2)The Company utilized credit ratings provided by Moody’s, S&P and Fitch in its evaluation of issuers.
Single issuer trust preferred securities - At March 31, 2013, the fair value of the single issuer trust preferred portfolio was $46.1 million, an increase of $1.7 million from the fair value of $44.4 million at December 31, 2012, attributable to improvements in credit and liquidity spreads. The gross unrealized loss of $5.2 million at March 31, 2013 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 continue to service the debt and showed significantly improved capital levels in recent years and remain well above current regulatory capital standards. Based on the review of the qualitative and quantitative factors presented above, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2013.
The following table summarizes pertinent information that was considered by management in evaluating the Trust Preferred Securities - Single Issuers portfolio for OTTI in the current reporting period:
Trust Preferred Securities - Single Issuers
Deal Name
Amortized
Cost
Gross
Unrealized
Losses
Fair
Value
Lowest Credit
Ratings as of
March 31,
2013 (1)
(Dollars in thousands)
 
 
 
 
Security B
$
6,902

$
(940
)
$
5,962

BB
Security C
8,684

(678
)
8,006

BBB
Security D
9,544

(794
)
8,750

B
Security E
11,779

(1,045
)
10,734

BBB
Security F
14,316

(1,716
)
12,600

BBB
 
$
51,225

$
(5,173
)
$
46,052

 

(1)The Company utilized credit ratings provided by Moody’s, S&P and Fitch in its evaluation of issuers.
Corporate debt securities – There were no unrealized losses in the Company’s investment in senior corporate debt securities at March 31, 2013 and December 31, 2012.
Equity securities – There were no unrealized losses on the Company’s investment in equity securities at March 31, 2013, compared to $4 thousand at December 31, 2012. This portfolio consists primarily of investments in the common stock of small capitalization financial institutions based in New England. 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 does not consider these securities to be other-than-temporarily impaired at March 31, 2013.

14


The following discussion summarizes, by investment security type, the basis for the conclusion that the applicable investment securities within the Company’s held-to-maturity portfolio were not other-than-temporarily impaired at March 31, 2013. Unless otherwise noted, under an investment security type, management does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell these securities before the recovery of its amortized cost. There were no significant credit downgrades on held-to-maturity securities during the three months ended March 31, 2013.
Agency CMOs – There were no unrealized losses on the Company’s investment in agency CMOs at March 31, 2013, compared to $8 thousand at December 31, 2012. The contractual cash flows for this investment are performing as expected. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2013.
Agency mortgage-backed securities – There were unrealized losses on the Company’s investment in residential mortgage-backed securities issued by government agencies of $3.7 million at March 31, 2013, compared to $474 thousand at December 31, 2012. The increase was primarily due to the impact of higher interest rates on lower coupon mortgages. The contractual cash flows for these investments are performing as expected. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2013.
Municipal bonds and notes – There were unrealized losses of $155 thousand on the Company’s investment in municipal bonds and notes at March 31, 2013 compared to $110 thousand at December 31, 2012. This increase is primarily the result of wider credit spreads and robust supply in the current quarter. The municipal portfolio is primarily comprised of bank qualified bonds, over 94.2% with credit ratings of A or better.  These ratings do not consider prefunded municipal holdings to be rated AA. If this were the case, the percentage of holdings rated A or better would be slightly over 97.0%. In addition, the portfolio is comprised of 84.6% general obligation bonds, 15.0% revenue bonds and 0.4% other bonds. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2013.
CMBS – There were unrealized losses of $223 thousand on the Company’s investment in commercial mortgage-backed securities issued by entities other than government agencies at March 31, 2013 compared to no unrealized losses at December 31, 2012. This current unrealized loss is the result of higher rates, offsetting spread tightening on one position the company owns, which is currently externally rated AAA/Aaa. This security is currently performing as expected. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2013.
Private Label MBS - There were no unrealized losses on the Company's investment in residential mortgage-backed securities issued by entities other than government agencies at March 31, 2013 or December 31, 2012. The Company does not consider these securities to be other-then-temporarily impaired at March 31, 2013.
The following is a roll forward of the amount of credit related OTTI recognized in earnings for the three months ended March 31:
(In thousands)
2013
2012
Balance of credit related OTTI, beginning of period
$
10,460

$
10,460

Reduction for payment of deferred interest


Reduction for securities sold


Additions for credit related OTTI not previously recognized


Balance of credit related OTTI, end of period
$
10,460

$
10,460

There were no additions to credit related OTTI for the three months ended March 31, 2013 or 2012. To the extent that changes in interest rates, credit movements and other factors that influence the fair value of investments occur, the Company may be required to record impairment charges for OTTI in future periods.
There were no securities sales for the three months ended March 31, 2012. The following table summarizes the proceeds from the sale of securities for the three months ended March 31, 2013:
(In thousands)
2013
Available for sale:
 
Agency MBS
$
11,771

Total available for sale
$
11,771


15


There were no realized gains or losses from the sale of securities for the three months ended March 31, 2012. The following table summarizes the impact of realized gains and losses from the sale of securities and the impact of the recognition of OTTI for the three months ended March 31, 2013:
 
2013
(In thousands)
Gains
Losses
OTTI
Net
Available for sale:
 
 
 
 
Agency MBS
$
106



$
106

Total available for sale
$
106



$
106

Investments in private equity funds - In addition to investment securities, the Company has investments in private equity funds. These investments, which totaled $11.3 million at March 31, 2013 and $11.6 million at December 31, 2012, are included in other assets in the accompanying Condensed Consolidated Balance Sheets. The Company recognized losses of $264 thousand and $705 thousand, including both mark to market and OTTI charges on these investments, for the three months ended March 31, 2013 and 2012, respectively. These amounts are included in other non-interest income in the accompanying Condensed Consolidated Statements of Income.


NOTE 3: Loans and Leases

Recorded Investment in Loans and Leases. The following tables summarize recorded investment; the principal amounts outstanding, net of unamortized premiums and discounts, net of deferred fees and/or costs, plus accrued interest, in loans and leases, by portfolio segment at March 31, 2013 and December 31, 2012:
 
 
At At March 31, 2013
(In thousands)
Residential
Consumer
Commercial
Commercial
Real Estate
Equipment
Financing
Total
Loans and Leases:
 
 
 
 
 
 
Ending balance (1)
$
3,287,072

$
2,577,523

$
2,941,886

$
2,790,954

$
404,597

$
12,002,032

Accrued interest
10,245

7,943

9,797

7,900


35,885

Recorded investment
$
3,297,317

$
2,585,466

$
2,951,683

$
2,798,854

$
404,597

$
12,037,917

Recorded investment: individually evaluated for impairment
$
145,753

$
54,707

$
63,405

$
173,849

$
1,643

$
439,357

Recorded investment: collectively evaluated for impairment
$
3,151,564

$
2,530,759

$
2,888,278

$
2,625,005

$
402,954

$
11,598,560

 
 
At At December 31, 2012
(In thousands)
Residential
Consumer
Commercial
Commercial
Real Estate
Equipment
Financing
Total
Loans and Leases:
 
 
 
 
 
 
Ending balance (1)
$
3,291,724

$
2,630,867

$
2,903,733

$
2,783,061

$
419,311

$
12,028,696

Accrued interest
10,271

8,095

9,453

7,541


35,360

Recorded investment
$
3,301,995

$
2,638,962

$
2,913,186

$
2,790,602

$
419,311

$
12,064,056

Recorded investment: individually evaluated for impairment
$
146,944

$
54,793

$
69,426

$
154,978

$
1,980

$
428,121

Recorded investment: collectively evaluated for impairment
$
3,155,051

$
2,584,169

$
2,843,760

$
2,635,624

$
417,331

$
11,635,935

 
(1)
The ending balance includes net deferred fees and unamortized premiums of $12.3 million and $12.7 million at March 31, 2013 and December 31, 2012, respectively.
As of March 31, 2013, the Company had pledged $4.3 billion of eligible loan collateral to support available borrowing capacity at either the FHLB of Boston or the Federal Reserve discount window.

16


Loans and Leases Portfolio Aging. The following tables summarize the recorded investment of the Company’s loan and lease portfolio aging by class at March 31, 2013 and December 31, 2012: