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Webster Financial 10-Q 2015
WBS - 03.31.2015 - 10Q
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_______________________________________________________________________________
FORM 10-Q
_______________________________________________________________________________
þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2015
or
o  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, 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    o  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    o  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
o
 
Non-accelerated filer
o
 
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    o  Yes    þ  No
The number of shares of common stock, par value $.01 per share, outstanding as of April 30, 2015 was 90,781,009.


 




INDEX
 

i


PART I. – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
March 31,
2015
 
December 31,
2014
(In thousands, except share data)
(Unaudited)
 
 
Assets:
 
 
 
Cash and due from banks
$
233,970

 
$
261,544

Interest-bearing deposits
119,297

 
132,695

Securities available-for-sale, at fair value
2,968,109

 
2,793,873

Securities held-to-maturity (fair value of $4,022,981 and $3,948,706)
3,923,189

 
3,872,955

Federal Home Loan Bank and Federal Reserve Bank stock
193,290

 
193,290

Loans held for sale
45,866

 
67,952

Loans and leases
14,270,226

 
13,900,025

Allowance for loan and lease losses
(161,970
)
 
(159,264
)
Loans and leases, net
14,108,256

 
13,740,761

Deferred tax asset, net
61,136

 
73,873

Premises and equipment, net
123,548

 
121,933

Goodwill
538,373

 
529,887

Other intangible assets, net
44,378

 
2,666

Cash surrender value of life insurance policies
443,225

 
440,073

Accrued interest receivable and other assets
304,051

 
301,670

Total assets
$
23,106,688

 
$
22,533,172

Liabilities and shareholders' equity:
 
 
 
Deposits:
 
 
 
Non-interest-bearing
$
3,450,316

 
$
3,598,872

Interest-bearing
14,095,334

 
12,052,733

Total deposits
17,545,650

 
15,651,605

Securities sold under agreements to repurchase and other borrowings
1,083,877

 
1,250,756

Federal Home Loan Bank advances
1,584,357

 
2,859,431

Long-term debt
226,267

 
226,237

Accrued expenses and other liabilities
310,962

 
222,328

Total liabilities
20,751,113

 
20,210,357

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 - 93,644,633 and 93,623,090 shares
936

 
936

Paid-in capital
1,128,897

 
1,127,534

Retained earnings
1,230,816

 
1,202,251

Treasury stock, at cost (3,147,804 and 3,241,555 shares)
(106,633
)
 
(103,294
)
Accumulated other comprehensive loss
(50,090
)
 
(56,261
)
Total shareholders' equity
2,355,575

 
2,322,815

Total liabilities and shareholders' equity
$
23,106,688

 
$
22,533,172

See accompanying Notes to 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)
2015
 
2014
Interest Income:
 
 
 
Interest and fees on loans and leases
$
130,723

 
$
124,010

Taxable interest and dividends on securities
47,652

 
48,841

Non-taxable interest on securities
4,027

 
4,751

Loans held for sale
510

 
177

Total interest income
182,912

 
177,779

Interest Expense:
 
 
 
Deposits
11,542

 
10,644

Securities sold under agreements to repurchase and other borrowings
4,387

 
5,205

Federal Home Loan Bank advances
4,821

 
3,847

Long-term debt
2,398

 
2,782

Total interest expense
23,148

 
22,478

Net interest income
159,764

 
155,301

Provision for loan and lease losses
9,750

 
9,000

Net interest income after provision for loan and lease losses
150,014

 
146,301

Non-interest Income:
 
 
 
Deposit service fees
32,625

 
24,712

Loan related fees
5,679

 
4,482

Wealth and investment services
7,889

 
8,838

Mortgage banking activities
1,561

 
775

Increase in cash surrender value of life insurance policies
3,152

 
3,258

Net gain on sale of investment securities
43

 
4,336

Impairment loss recognized in earnings

 
(88
)
Other income
6,941

 
3,515

Total non-interest income
57,890

 
49,828

Non-interest Expense:
 
 
 
Compensation and benefits
70,864

 
66,371

Occupancy
13,596

 
12,759

Technology and equipment
19,248

 
15,010

Intangible assets amortization
1,288

 
1,168

Marketing
4,176

 
3,180

Professional and outside services
2,453

 
2,702

Deposit insurance
6,241

 
5,311

Other expense
16,224

 
17,962

Total non-interest expense
134,090

 
124,463

Income before income tax expense
73,814

 
71,666

Income tax expense
24,092

 
21,237

Net income
49,722

 
50,429

Preferred stock dividends
(2,639
)
 
(2,639
)
Net income available to common shareholders
$
47,083

 
$
47,790

Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.52

 
$
0.53

Diluted
0.52

 
0.53

See accompanying Notes to Condensed Consolidated Financial Statements.


2


WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
Three months ended March 31,
(In thousands)
2015
 
2014
Net income
$
49,722

 
$
50,429

Other comprehensive income (loss), net of taxes:
 
 
 
Total available-for-sale and transferred securities
6,967

 
8,122

Total derivative instruments
(1,770
)
 
(3,726
)
Total defined benefit pension and other postretirement benefit plans
974

 
462

Other comprehensive income, net of tax
6,171

 
4,858

Comprehensive income
$
55,893

 
$
55,287

See accompanying Notes to Condensed Consolidated Financial Statements.


3


WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
 
(In thousands, except per share data)
Preferred
Stock
Common
Stock
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Total
Shareholders'
Equity
Balance at December 31, 2014
$
151,649

$
936

$
1,127,534

$
1,202,251

$
(103,294
)
$
(56,261
)
$
2,322,815

Net income



49,722



49,722

Other comprehensive income, net of taxes





6,171

6,171

Dividends on common stock and dividend equivalents declared $0.20 per share


25

(18,161
)


(18,136
)
Dividends on Series A preferred stock $21.25 per share



(615
)


(615
)
Dividends on Series E preferred stock $400.00 per share



(2,024
)


(2,024
)
Stock-based compensation, net of tax impact


1,471

(357
)
2,271


3,385

Exercise of stock options


(133
)

394


261

Shares acquired related to employee share-based compensation plans




(3,379
)

(3,379
)
Common stock repurchased




(2,625
)

(2,625
)
Balance at March 31, 2015
$
151,649

$
936

$
1,128,897

$
1,230,816

$
(106,633
)
$
(50,090
)
$
2,355,575

 
 
 
 
 
 
 
 
(In thousands, except per share data)
Preferred
Stock
Common
Stock
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Total
Shareholders'
Equity
Balance at December 31, 2013
$
151,649

$
934

$
1,125,584

$
1,080,488

$
(100,918
)
$
(48,549
)
$
2,209,188

Cumulative effect of change in accounting principle



160



160

Net income



50,429



50,429

Other comprehensive income, net of taxes





4,858

4,858

Dividends on common stock and dividend equivalents declared $0.15 per share


10

(13,546
)


(13,536
)
Dividends on Series A preferred stock $21.25 per share



(615
)


(615
)
Dividends on Series E preferred stock $400.00 per share



(2,024
)


(2,024
)
Common stock issued


198




198

Stock-based compensation, net of tax impact


1,083

(638
)
2,857


3,302

Shares acquired related to employee share-based compensation plans




(2,098
)

(2,098
)
Common stock repurchased




(10,067
)

(10,067
)
Balance at March 31, 2014
$
151,649

$
934

$
1,126,875

$
1,114,254

$
(110,226
)
$
(43,691
)
$
2,239,795

See accompanying Notes to Condensed Consolidated Financial Statements.

4


WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Three months ended March 31,
(In thousands)
2015
 
2014
Operating Activities:
 
 
 
Net income
$
49,722

 
$
50,429

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan and lease losses
9,750

 
9,000

Deferred tax expense
10,138

 
7,423

Depreciation and amortization
8,099

 
8,418

Amortization of earning assets and funding premium/discount, net
12,955

 
11,606

Stock-based compensation
2,282

 
2,773

Loss (gain) on sale, net of write-down, on foreclosed and repossessed assets
536

 
(260
)
(Gain) loss on sale, net of write-down, on premises and equipment
(373
)
 
58

Impairment loss recognized in earnings

 
88

Net gain on the sale of investment securities
(43
)
 
(4,336
)
Increase in cash surrender value of life insurance policies
(3,152
)
 
(3,258
)
Gain from life insurance policies
(220
)
 

Gain, net on sale of loans held for sale
(1,561
)
 
(775
)
Proceeds from sale of loans held for sale
76,895

 
65,643

Origination of loans held for sale
(86,882
)
 
(58,560
)
Net increase in accrued interest receivable and other assets
(33,912
)
 
(16,397
)
Net increase (decrease) in accrued expenses and other liabilities
14,552

 
(8,564
)
Net cash provided by operating activities
58,786

 
63,288

Investing Activities:
 
 
 
Net decrease (increase) in interest-bearing deposits
13,398

 
(6,219
)
Purchases of available for sale securities
(236,668
)
 
(9,908
)
Proceeds from maturities and principal payments of available for sale securities
137,874

 
96,983

Proceeds from sales of available for sale securities
27,859

 
21,695

Purchases of held-to-maturity securities
(201,182
)
 
(225,839
)
Proceeds from maturities and principal payments of held-to-maturity securities
143,891

 
131,364

Net purchase of Federal Home Loan Bank stock

 
(7,255
)
Net increase in loans
(380,155
)
 
(304,401
)
Proceeds from loans not originated for sale
32,915

 

Proceeds from life insurance policies
3,912

 

Proceeds from the sale of foreclosed and repossessed assets
3,399

 
2,824

Proceeds from the sale of premises and equipment
650

 

Purchases of premises and equipment
(8,437
)
 
(7,970
)
Acquisition of business, net of cash acquired
1,396,414

 

Net cash provided by (used for) investing activities
933,870

 
(308,726
)
Financing Activities:
 
 
 
Net increase in deposits
447,021

 
185,238

Proceeds from Federal Home Loan Bank advances
2,800,000

 
1,401,234

Repayments of Federal Home Loan Bank advances
(4,075,070
)
 
(1,250,043
)
Net decrease in securities sold under agreements to repurchase and other borrowings
(166,879
)
 
(183,780
)
Issuance of long-term debt

 
150,000

Debt issuance costs

 
(1,349
)
Dividends paid to common shareholders
(18,029
)
 
(13,493
)
Dividends paid to preferred shareholders
(2,639
)
 
(2,639
)
Exercise of stock options
261

 

Excess tax benefits from stock-based compensation
1,109

 
507

Common stock issued

 
198

Common stock repurchased
(2,625
)
 
(10,067
)
Shares acquired related to employee share-based compensation plans
(3,379
)
 
(2,098
)
Net cash (used for) provided by financing activities
(1,020,230
)
 
273,708

See accompanying Notes to Condensed Consolidated Financial Statements.

5


WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited), continued
 
Three months ended March 31,
(In thousands)
2015
2014
Net (decrease) increase in cash and due from banks
(27,574
)
28,270

Cash and due from banks at beginning of period
261,544

223,616

Cash and due from banks at end of period
$
233,970

$
251,886

 
 
 
Supplemental disclosure of cash flow information:
 
 
Interest paid
$
25,695

$
19,419

Income taxes paid
12,009

9,764

Noncash investing and financing activities:
 
 
Transfer of loans and leases to foreclosed properties and repossessed assets
$
2,722

$
1,661

Deposits assumed in business acquisition
1,446,899


See accompanying Notes to Condensed Consolidated Financial Statements.

6


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, incorporated under the laws of Delaware in 1986 and headquartered in Waterbury, Connecticut. At March 31, 2015, Webster Financial Corporation's principal asset is 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 primarily from New York, N.Y. to Boston, Mass. 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 also offers equipment financing, commercial real estate lending, and asset-based lending across the Northeast. Webster Bank offers, through its HSA Bank division, health savings accounts on a nationwide basis.
Basis of Presentation
The accounting and reporting policies of the Company that materially affect the Condensed Consolidated Financial Statements conform with U.S. Generally Accepted Accounting Principles ("GAAP"). The accompanying unaudited Condensed Consolidated Financial Statements of the Company have been prepared in conformity with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and notes 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, 2014, included in the Company's Annual Report on Form 10-K filed with the SEC on February 27, 2015.
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities as of the date of the financial statements as well as income and expense during the period. Actual results could differ from those estimates. Operating results for the interim period disclosed herein are not necessarily indicative of the results that may be expected for the full year or any future period.
Certain prior period amounts have been reclassified to conform to the current year's presentation. These reclassifications had an immaterial effect on net income, comprehensive income, total assets, total liabilities, total stockholders' equity, net cash provided by operating activities, net cash used for investing activities, and net cash provided by financing activities.
Acquisition
On January 13, 2015 (the "acquisition date”), the Company completed its acquisition of the health savings account business of JPMorgan Chase Bank, N.A. The results of the acquisition have been included in the financial statements from the acquisition date. See Note 2 - Acquisition and Note 6 - Goodwill and Other Intangible Assets for further information.
Modifications to Significant Accounting Policies
Non-accrual loans. Effective during the first quarter of 2015, residential loans that are more than 90 days past due, fully insured against loss, and in the process of collection, remain accruing loans and are reported as 90 days or more past due and accruing. Previously, these loans were placed on non-accrual when payments were 90 days or more past due. For presentation purposes, previously reported amounts have been reclassified to conform to the current year presentation. The change in accounting policy did not have a material impact on the financial statements.
Other intangible assets. Other intangible assets with finite useful lives are amortized to non-interest expense over their estimated useful lives. Effective during the first quarter of 2015, core deposit intangibles resulting from the acquisition are amortized on an accelerated basis over their estimated useful lives. Core deposit intangibles existing prior to the acquisition will continue to be amortized on a straight line basis over their remaining estimated useful lives. Intangible assets relating to customer relationships are amortized on a straight line basis over their estimated useful lives.
Recently Adopted Accounting Standards Updates
ASU No. 2014-01 - Investments - Equity Method and Joint Ventures (Topic 323) - "Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force)." The ASU requires an entity to disclose information about its investments in qualified affordable housing projects and provides an accounting policy election for it to account for such investments using the proportional amortization method. Under that method, the initial cost of an investment is amortized in proportion to its tax credits and other tax benefits as a component of income tax expense or benefit. The decision to apply the proportionate amortization method is to be applied consistently to all such investments.

7


The Company adopted this ASU effective January 1, 2015 and retrospectively applied the effects of its accounting policy decision to use the proportional amortization method. Webster believes presenting the investment performance net of taxes as a component of income tax expense or benefit better represents the economics of such investments, and the change has no material effect on its financial statements. See the Income Taxes section of Management's Discussion and Analysis of Financial Condition and Results of Operation for information regarding the financial impact of the adopted ASU.
ASU No. 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) - "Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)." The ASU clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (i) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (ii) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar agreement. In addition, the amendments require disclosure of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure in accordance with local requirements of the applicable jurisdiction. An entity can elect to adopt the amendments using either a modified retrospective method or a prospective transition method. This amendment was adopted during the first quarter of 2015 and did not have a material impact on the Company's financial statements.
ASU No. 2014-11 - Transfers and Servicing (Topic 860) - “Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.” The ASU requires two accounting changes: (i) repurchase-to-maturity transactions are to be accounted for as secured borrowings; and (ii) with respect to repurchase financing arrangements, accounting is required for a transfer of a financial asset contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. Additionally, disclosure requirements have been expanded to include a disaggregation of collateral used for secured borrowings, and contractual maturity disclosure has been expanded to interim periods. This amendment was adopted during the first quarter of 2015 and did not have a material impact on the Company's financial statements.
ASU No. 2014-14, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40) - "Classification of Certain Government-Guaranteed Residential Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)." The ASU has been issued to reduce diversity in practice in the classification of foreclosed residential mortgage loans held by creditors that are fully guaranteed under certain government programs, including the Federal Housing Administration guarantees. A residential mortgage loan would be derecognized, and a separate other receivable would be recognized upon foreclosure if the loan has both of the following characteristics: (i) the loan has a government guarantee that is not separable from the loan before foreclosure entitling the creditor to the full unpaid principal balance of the loan; and (ii) at the time of foreclosure, the creditor has the intent to make a claim on the guarantee and the ability to recover the full unpaid principal balance of the loan through the guarantee. Notably, upon foreclosure, the separate other receivable would be measured based on the current amount of the loan balance expected to be recovered under the guarantee. This amendment was adopted during the first quarter of 2015 and did not have a material impact on the Company's financial statements.
Recently Issued Accounting Standards Updates
ASU No. 2014-09 - Revenue from Contracts with Customers (Topic 606). The ASU establishes a single comprehensive model for an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled, and will supersede nearly all existing revenue recognition guidance, and clarify and converge revenue recognition principles under US GAAP and IFRS. The update outlines five steps to recognizing revenue: (i) identify the contracts with the customer; (ii) identify the separate performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the separate performance obligations; and (v) recognize revenue when each performance obligation is satisfied. The update requires more comprehensive disclosures, relating to quantitative and qualitative information for amounts, timing, the nature and uncertainty of revenue, and cash flows arising from contracts with customers, which will mainly impact construction and high-tech industries. The most significant potential impact to banking entities relates to less prescriptive derecognition requirements on the sale of owned real estate properties. An entity may elect either a full retrospective or a modified retrospective application. Subsequent to the filing of the Company's Consolidated Financial Statements and Notes thereto, for the year ended December 31, 2014, included in its 2014 Form 10-K, the ASU's effective date was changed from annual and interim periods beginning after December 15, 2016 to annual and interim periods beginning after December 15, 2017. As such, the Company revised its intended adoption date of the accounting standard from the first quarter of 2017 to the first quarter of 2018. The adoption of this amendment is not anticipated to have a material impact on the Company's financial statements.

8


NOTE 2: Acquisition
On January 13, 2015 (“the acquisition date”) the Bank, having previously received regulatory approval, completed its acquisition of the health savings account business of JPMorgan Chase Bank, N.A. As a result of the acquisition, the Company became the leading administrator of health savings accounts in the United States. The acquisition significantly augments a source of stable, low cost, long duration deposits.
The acquisition-date fair value of the consideration transferred consisted of the following:
(In thousands)
At January 13, 2015
Cash
$
50,485

Contingent consideration (1)
(5,000
)
Total net consideration transferred
$
45,485

(1) The contingent consideration arrangement entitles the Company to receive a rebate of the purchase price relating to the premium paid for account attrition.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
(In thousands)
At January 13, 2015
Cash
$
1,446,898

Intangible assets
43,000

Total identifiable assets acquired
$
1,489,898



Deposits
$
1,446,899

Contingent liability
6,000

Total liabilities assumed
$
1,452,899



Net identifiable assets acquired
$
36,999

Goodwill
8,486

Net assets acquired
$
45,485

The fair value of the acquired identifiable intangible assets includes a core deposit intangible and customer relationships.  The Company is in the process of completing its analysis of fair value of the assets acquired and liabilities assumed; thus, the measurements of identifiable intangible assets, goodwill and contingencies are subject to change. Refer to Note 6 - Goodwill and Other Intangible Assets for additional information relating to the initial amounts of goodwill and other intangible assets recognized.
The contingent liability represents an obligation that existed at the acquisition date. Accordingly, Webster assumed the liability as part of the transaction and has accounted for it at fair value.
Refer to Note 15 - Fair Value Measurements for additional information on the contingent liability, as well as a discussion of the inputs used to derive the fair value of the contingent consideration recorded.

9


Note 3 - Investment Securities
Summaries of the amortized cost, carrying value, and fair value of Webster’s investment securities are presented below:
 
At March 31, 2015
 
 
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
$
425

$

$

$
425

$

$

$
425

Agency collateralized mortgage obligations (“agency CMO”)
654,911

10,580

(791
)
664,700



664,700

Agency mortgage-backed securities (“agency MBS”)
1,012,462

12,093

(7,548
)
1,017,007



1,017,007

Agency commercial mortgage-backed securities (“agency CMBS”)
126,439

1,263


127,702



127,702

Non-agency commercial mortgage-backed securities agency (“non-agency CMBS”)
544,483

18,173

(33
)
562,623



562,623

Collateralized loan obligations ("CLO") (1)
441,061

1,979

(339
)
442,701



442,701

Single issuer trust preferred securities
42,025

31

(3,774
)
38,282



38,282

Corporate debt securities
105,905

4,179


110,084



110,084

Equity securities - financial institutions
3,500

1,085


4,585



4,585

Total available-for-sale
$
2,931,211

$
49,383

$
(12,485
)
$
2,968,109

$

$

$
2,968,109

Held-to-maturity:







Agency CMO
$
414,952

$

$

$
414,952

$
8,648

$
(423
)
$
423,177

Agency MBS
2,109,728



2,109,728

64,646

(7,001
)
2,167,373

Agency CMBS
625,320



625,320

9,127

(872
)
633,575

Municipal bonds and notes
404,735



404,735

13,615

(972
)
417,378

Non-agency CMBS
363,319



363,319

13,092

(153
)
376,258

Private Label MBS
5,135



5,135

85


5,220

Total held-to-maturity
$
3,923,189

$

$

$
3,923,189

$
109,213

$
(9,421
)
$
4,022,981

(1)
Amortized cost is net of $3.6 million of other-than-temporary impairments at March 31, 2015.



10


 
At December 31, 2014
 
 
Recognized in OCI
 
Not Recognized in OCI
 
(In thousands)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Available-for-sale:







U.S. Treasury Bills
$
525

$

$

$
525

$

$

$
525

Agency CMO
543,417

8,636

(1,065
)
550,988



550,988

Agency MBS
1,030,724

10,462

(12,668
)
1,028,518



1,028,518

Agency CMBS
80,400


(134
)
80,266



80,266

Non-agency CMBS
534,631

18,885

(123
)
553,393



553,393

CLO (1)
426,269

482

(1,017
)
425,734



425,734

Single issuer trust preferred securities
41,981


(3,736
)
38,245



38,245

Corporate debt securities
106,520

3,781


110,301



110,301

Equity securities - financial institutions
3,500

2,403


5,903



5,903

Total available-for-sale
$
2,767,967

$
44,649

$
(18,743
)
$
2,793,873

$

$

$
2,793,873

Held-to-maturity:







Agency CMO
$
442,129

$

$

$
442,129

$
6,584

$
(739
)
$
447,974

Agency MBS
2,134,319



2,134,319

57,196

(11,340
)
2,180,175

Agency CMBS
578,687



578,687

1,597

(1,143
)
579,141

Municipal bonds and notes
373,211



373,211

15,138

(55
)
388,294

Non-agency CMBS
338,723



338,723

9,428

(1,015
)
347,136

Private Label MBS
5,886



5,886

100


5,986

Total held-to-maturity
$
3,872,955

$

$

$
3,872,955

$
90,043

$
(14,292
)
$
3,948,706

(1)
Amortized cost is net of $3.7 million of other-than-temporary impairments at December 31, 2014.
Contractual Maturities
The amortized cost and fair value of debt securities at March 31, 2015, 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
$
25,465

$
25,567

 
$
805

$
808

Due after one year through five years
120,864

124,974

 
54,040

56,105

Due after five through ten years
395,985

397,416

 
74,404

77,194

Due after ten years
2,385,397

2,415,567

 
3,793,940

3,888,874

Total debt securities
$
2,927,711

$
2,963,524

 
$
3,923,189

$
4,022,981

For the maturity schedule above, mortgage-backed securities and collateralized loan obligations, which are not due at a single maturity date, have been categorized based on the maturity date of the underlying collateral. Actual principal cash flows may differ from this maturity date presentation because borrowers have the right to prepay obligations with or without prepayment penalties. At March 31, 2015, the Company had a carrying value of $908.6 million in callable securities in its CMBS, CLO, and municipal bond portfolios. The Company considers these factors in the evaluation of its interest rate risk profile. These maturities do not reflect actual duration which is impacted by prepayment assumptions.
Securities with a carrying value totaling $2.9 billion at March 31, 2015 and December 31, 2014, were pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law. At March 31, 2015 and December 31, 2014, the Company had no investments in obligations of individual states, counties, or municipalities which exceeded 10% of consolidated shareholders’ equity.

11


Gross Unrealized Losses and Fair Value
The following tables provide information on the gross unrealized losses and fair value of the Company’s investment securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment security type and length of time that individual investment securities have been in a continuous unrealized loss position:
 
At March 31, 2015
 
Less Than Twelve Months
 
Twelve Months or Longer
 
Total
(Dollars in thousands)
Fair
Value
Unrealized
Losses
 
Fair
Value
Unrealized
Losses
 
# of
Holdings
Fair
Value
Unrealized
Losses
Available-for-sale:
 
 
 
 
 
 
 
 
 
Agency CMO
$
43,228

$
(264
)
 
$
31,579

$
(527
)
 
5
$
74,807

$
(791
)
Agency MBS
187,105

(889
)
 
404,414

(6,659
)
 
60
591,519

(7,548
)
Agency CMBS


 


 


Non-agency CMBS
48,214

(20
)
 
9,387

(13
)
 
6
57,601

(33
)
CLO
30,760

(339
)
 


 
2
30,760

(339
)
Single issuer trust preferred securities


 
34,057

(3,774
)
 
7
34,057

(3,774
)
Total available-for-sale in an unrealized loss position
$
309,307

$
(1,512
)
 
$
479,437

$
(10,973
)
 
80
$
788,744

$
(12,485
)
Held-to-maturity:
 
 
 
 
 
 
 
 
 
Agency CMO
$
8,856

$
(53
)
 
$
24,116

$
(370
)
 
3
$
32,972

$
(423
)
Agency MBS
151,582

(769
)
 
529,147

(6,232
)
 
47
680,729

(7,001
)
Agency CMBS
22,325

(872
)
 


 
1
22,325

(872
)
Municipal bonds and notes
46,405

(944
)
 
3,076

(28
)
 
37
49,481

(972
)
Non-agency CMBS
5,273

(33
)
 
30,849

(120
)
 
3
36,122

(153
)
Total held-to-maturity in an unrealized loss position
$
234,441

$
(2,671
)
 
$
587,188

$
(6,750
)
 
91
$
821,629

$
(9,421
)
 
 
At December 31, 2014
 
Less Than Twelve Months
 
Twelve Months or Longer
 
Total
(Dollars in thousands)
Fair
Value
Unrealized
Losses
 
Fair
Value
Unrealized
Losses
 
# of
Holdings
Fair
Value
Unrealized
Losses
Available-for-sale:
 
 
 
 
 
 
 
 
 
Agency CMO
$
47,217

$
(240
)
 
$
35,968

$
(825
)
 
8
$
83,185

$
(1,065
)
Agency MBS
3,691

(18
)
 
641,355

(12,650
)
 
64
645,046

(12,668
)
Agency CMBS
80,266

(134
)
 


 
4
80,266

(134
)
Non-agency CMBS
24,932

(117
)
 
9,396

(6
)
 
4
34,328

(123
)
CLO
99,221

(1,017
)
 


 
6
99,221

(1,017
)
Single issuer trust preferred securities
4,150

(36
)
 
34,095

(3,700
)
 
8
38,245

(3,736
)
Total available-for-sale in an unrealized loss position
$
259,477

$
(1,562
)
 
$
720,814

$
(17,181
)
 
94
$
980,291

$
(18,743
)
Held-to-maturity:
 
 
 
 
 
 
 
 
 
Agency CMO
$
52,172

$
(187
)
 
$
24,942

$
(552
)
 
6
$
77,114

$
(739
)
Agency MBS
20,791

(86
)
 
608,568

(11,254
)
 
44
629,359

(11,340
)
Agency CMBS
324,394

(1,143
)
 


 
17
324,394

(1,143
)
Municipal bonds and notes
5,341

(23
)
 
3,074

(32
)
 
15
8,415

(55
)
Non-agency CMBS
13,003

(30
)
 
65,913

(985
)
 
7
78,916

(1,015
)
Total held-to-maturity in an unrealized loss position
$
415,701

$
(1,469
)
 
$
702,497

$
(12,823
)
 
89
$
1,118,198

$
(14,292
)


12


Available-for-Sale Impairment Analysis
The following discussion summarizes, by investment security type, the basis for evaluating if the applicable investment securities within the Company’s available-for-sale portfolio were other-than-temporarily impaired at March 31, 2015. 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 their amortized cost.
Agency CMO. There were unrealized losses of $0.8 million on the Company’s investment in agency CMO at March 31, 2015 compared to $1.1 million at December 31, 2014. Unrealized losses decreased due to lower market rates which resulted in higher security prices at March 31, 2015 compared to December 31, 2014. 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, 2015.
Agency MBS. There were unrealized losses of $7.5 million on the Company’s investment in residential mortgage-backed securities issued by government agencies at March 31, 2015 compared to $12.7 million at December 31, 2014. Unrealized losses decreased due to lower market rates which resulted in higher security prices at March 31, 2015 compared to December 31, 2014. These investments are issued by a government or a government-sponsored agency and, therefore, are backed by certain government guarantees, either direct or indirect. There has been no change in the credit quality, and the contractual cash flows are performing as expected. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2015.
CLO. There were unrealized losses of $0.3 million on the Company’s investment in Volcker compliant collateralized loan obligations at March 31, 2015 compared to $1.0 million of unrealized losses at December 31, 2014. The unrealized losses decreased due to tighter CLO spreads during the period. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2015. The Company continues to recognize the full write-down of CLO positions to market value if they meet the definition of a Covered Fund under the Volcker Rule effective December 10, 2013.
Single issuer trust preferred securities. There were unrealized losses of $3.8 million on the Company's investment in single issuer trust preferred securities at March 31, 2015 compared to $3.7 million at December 31, 2014. Unrealized losses increased due to higher market spreads for the asset class which resulted in lower security prices at March 31, 2015 compared to December 31, 2014. The single issuer portfolio consists of four investments issued by three large capitalization money center financial institutions, which continue to service the debt. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2015.
Held-to-Maturity Impairment Analysis
The following discussion summarizes, by investment type, the basis for the conclusion that the applicable investment securities within the Company’s held-to-maturity portfolio were not other-than-temporarily impaired at March 31, 2015. Unless otherwise noted under an investment security type, management does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell these securities before the recovery of its amortized cost.
Agency CMO. There were unrealized losses of $0.4 million on the Company’s investment in agency CMO at March 31, 2015 compared to $0.7 million at December 31, 2014. Unrealized losses decreased due to lower market rates which resulted in higher security prices on CMO positions purchased during the quarter. The contractual cash flows for these investments are performing as expected, and there has been no change in the underlying credit quality. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2015.
Agency MBS. There were unrealized losses of $7.0 million on the Company’s investment in residential mortgage-backed securities issued by government agencies at March 31, 2015 compared to $11.3 million at December 31, 2014. Unrealized losses decreased due to lower market rates which resulted in higher security prices at March 31, 2015 compared to December 31, 2014. These investments are issued by a government or a government-sponsored agency and, therefore, are backed by certain government guarantees, either direct or indirect. There has been no change in the credit quality, and the contractual cash flows are performing as expected. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2015.
Agency CMBS. There were unrealized losses of $0.9 million on the Company’s investment in commercial mortgage-backed securities issued by government agencies at March 31, 2015 compared to $1.1 million at December 31, 2014. Unrealized losses decreased due to lower market rates which resulted in higher security prices at March 31, 2015 compared to December 31, 2014. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2015.

13


Municipal bonds and notes. There were unrealized losses of $1.0 million on the Company’s investment in municipal bonds and notes at March 31, 2015 compared to $0.1 million at December 31, 2014. Unrealized losses increased due to higher market rates which resulted in lower security prices on new purchases since December 31, 2014. The municipal portfolio is primarily comprised of bank qualified bonds, over 99.4% with credit ratings of A or better. In addition, the portfolio is comprised of 89.7% general obligation bonds, 9.8% revenue bonds, and 0.5% other bonds. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2015.
Non-agency CMBS. There were unrealized losses of $0.2 million on the Company’s investment in non-agency commercial mortgage-backed securities issued by entities other than government agencies at March 31, 2015 compared to $1.0 million unrealized losses at December 31, 2014. Unrealized losses decreased due to lower market rates which resulted in higher security prices at March 31, 2015 compared to December 31, 2014. Internal and external metrics are considered when evaluating potential other-than temporary impairment. Internal stress tests are performed on individual bonds to monitor potential losses under stress scenarios. 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, 2015.
Other-Than-Temporary Impairment ("OTTI")
There were no additions to OTTI for the three months ended March 31, 2015 and additions of $0.1 million for the three months ended March 31, 2014. The cumulative OTTI related to previously impaired securities at the beginning of each period was reduced due to the call of one CLO during the first quarter of 2015 and the sale of four trust preferred securities during the first quarter of 2014. To the extent that changes in interest rates, credit movements, and other factors that influence the fair value of investments occur, the Company may be required to record impairment charges for OTTI in future periods.
The following is a roll forward of the amount of OTTI related to debt securities:
 
Three months ended March 31,
(In thousands)
2015
 
2014
Balance of OTTI, beginning of period
$
3,696

 
$
16,633

Reduction for securities sold, called
(99
)
 
(7,056
)
Additions for OTTI not previously recognized

 
88

Balance of OTTI, end of period
$
3,597

 
$
9,665

Realized Gains and Losses
The following table summarizes proceeds from available-for-sale securities, the gross realized gains and losses from those sales, and the impact of the recognition of other-than-temporary impairments for the periods presented:
 
Three months ended March 31,
(In thousands)
2015
 
2014
Proceeds from sales
$
27,859

 
$
21,695

 
 
 
 
Gross realized gains
$
43

 
$
4,336

OTTI write-down

 
(88
)
Net realized gains from investment securities
$
43

 
$
4,248



14


Note 4 - Loans and Leases
Recorded Investment in Loans and Leases. The following tables summarize the recorded investment in loans and leases by portfolio segment:
 
At March 31, 2015
(In thousands)
Residential
Consumer
Commercial
Commercial
Real Estate (1)
Equipment
Financing
Total (2)
Recorded Investment:
 
 
 
 
 
 
Individually evaluated for impairment
$
140,815

$
50,834

$
49,619

$
73,972

$
631

$
315,871

Collectively evaluated for impairment
3,464,162

2,526,616

3,862,095

3,597,297

543,005

13,993,175

Recorded investment in loans and leases
3,604,977

2,577,450

3,911,714

3,671,269

543,636

14,309,046

Less: Accrued interest
10,705

8,013

11,904

8,198


38,820

Loans and leases
$
3,594,272

$
2,569,437

$
3,899,810

$
3,663,071

$
543,636

$
14,270,226

 
At December 31, 2014
(In thousands)
Residential
Consumer
Commercial
Commercial
Real Estate (1)
Equipment
Financing
Total (2)
Recorded Investment:
 
 
 
 
 
 
Individually evaluated for impairment
$
142,435

$
50,374

$
36,454

$
103,045

$
632

$
332,940

Collectively evaluated for impairment
3,377,196

2,507,060

3,723,991

3,460,116

537,119

13,605,482

Recorded investment in loans and leases
3,519,631

2,557,434

3,760,445

3,563,161

537,751

13,938,422

Less: Accrued interest
10,456

8,033

11,175

8,733


38,397

Loans and leases
$
3,509,175

$
2,549,401

$
3,749,270

$
3,554,428

$
537,751

$
13,900,025

(1)
Includes certain loans individually evaluated for impairment under the Company's loan policy that were deemed not to be impaired at both March 31, 2015 and December 31, 2014.
(2)
Loans and leases include net deferred fees and unamortized premiums of $12.1 million and $10.6 million at March 31, 2015 and December 31, 2014, respectively.
At March 31, 2015, the Company had pledged $6.2 billion of eligible loan collateral to support available borrowing capacity at the Federal Home Loan Bank of Boston ("FHLB") and the Federal Reserve Bank of Boston.
Loans and Leases Portfolio Aging. The following tables summarize the aging of the recorded investment in loans and leases by portfolio class:
 
At March 31, 2015
(In thousands)
30-59 Days
Past Due and
Accruing
60-89 Days
Past Due and
Accruing
> 90 Days Past Due
and Accruing
Non-accrual
Total Past Due and Non-accrual
Current
Total Loans
and Leases
Residential
$
9,631

$
4,514

$
1,895

$
61,371

$
77,411

$
3,527,566

$
3,604,977

Consumer:
 
 
 
 
 
 
 
Home equity
12,001

7,658


37,617

57,276

2,408,439

2,465,715

Other consumer
587

343


267

1,197

110,538

111,735

Commercial:
 
 
 
 
 
 
 
Commercial non-mortgage
3,121

950

273

26,974

31,318

3,161,881

3,193,199