Edgar Filing: WEBSTER FINANCIAL CORP

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Form 10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

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

For the quarterly period ended June 30, 2009.

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

Commission File Number: 001-31486

LOGO

WEBSTER FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

06-1187536

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


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

(203) 465-4364

(Registrant’s telephone number, including area code)

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

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

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

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

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

The number of shares of common stock, par value $.01 per share, outstanding as of July 29, 2009 was 68,124,642.

Explanatory Note

Webster is filing this amended Form 10-Q for the sole and express purpose of correcting an error in the footnote setting forth the cumulative amount of other-than-temporary impairments at June 30, 2009 with respect to the available for sale equity securities portfolio. This amount is set forth in footnote (b) to the first table appearing in Note 4 to the condensed consolidated financial statements included herein.

In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by Webster’s principal executive officer and principal financial officer are filed as exhibits to this Form 10-Q/A under Item 6 hereof. No other new exhibits are being filed herewith.

No other changes have been made to the Form 10-Q. This form 10-Q/A speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the Form 10-Q.

INDEX


		Page No.
PART I – FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Operations	4

	Condensed Consolidated Statements of Changes in Equity	6

	Condensed Consolidated Statements of Cash Flows	7

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	59

Item 4.	Controls and Procedures	59

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	60

Item 1A.	Risk Factors	60

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60

Item 3.	Defaults upon Senior Securities	60

Item 4.	Submission of Matters to a Vote of Security Holders	60

Item 5.	Other Information	61

Item 6.	Exhibits	62

SIGNATURES		63

EXHIBIT INDEX		64

PART I. – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS (Unaudited)

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


*(Dollars in thousands, except share and per share amounts)*	June 30, 2009			December 31, 2008
	(unaudited)
Assets:
Cash and due from depository institutions	$	254,638		$	259,208
Short-term investments		8,216			22,154
Investment securities:
Trading, at fair value		—			77
Available for sale, at fair value		1,405,872			1,188,705
Held-to-maturity, at amortized cost (fair value of $2,800,705 and $2,559,745, respectively)		2,767,965			2,522,511

Total investment securities		4,173,837			3,711,293
Loans held for sale		113,936			24,524
Loans, net		11,304,703			11,952,262
Federal Home Loan Bank and Federal Reserve Bank stock		137,874			134,874
Goodwill		529,887			529,887
Cash surrender value of life insurance		285,064			279,807
Premises and equipment, net		179,625			185,928
Other intangible assets, net		31,126			34,039
Deferred tax asset, net		153,745			189,337
Accrued interest receivable and other assets		279,925			260,224

Total assets	$	17,452,576		$	17,583,537

Liabilities:
Deposits	$	13,174,582		$	11,884,890
Federal Home Loan Bank advances		663,123			1,335,996
Securities sold under agreements to repurchase and other short-term debt		1,015,099			1,570,971
Long-term debt		590,520			687,797
Accrued expenses and other liabilities		158,102			220,145

Total liabilities		15,601,426			15,699,799

Equity:
Shareholders’ equity:
Preferred stock, $0.01 par value; Authorized - 3,000,000 shares;
Series A issued and outstanding - 56,400 and 224,900 shares		56,400			224,900
Series B issued and outstanding - 400,000 shares (net of discount; $7,702 and $8,574)		392,298			391,426
Common stock, $0.01 par value; authorized - 200,000,000 shares;
Issued - 67,899,440 and 56,607,177 shares		679			566
Paid in capital:
Warrant for common stock		8,719			8,719
Additional paid in capital		815,893			722,962
Retained earnings		786,949			781,106
Accumulated other comprehensive loss, net of taxes		(66,872	)		(105,910	)
Less: Treasury stock, at cost; 3,801,628 and 3,723,527 shares		(152,548	)		(149,650	)

Total Webster Financial Corporation shareholders’ equity		1,841,518			1,874,119
Noncontrolling interests		9,632			9,619

Total equity		1,851,150			1,883,738

Total liabilities and equity	$	17,452,576		$	17,583,537

See accompanying Notes to Condensed Consolidated Financial Statements.

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three months ended June 30,						Six months ended June 30,
*(In thousands, except per share amounts)*	2009			2008			2009			2008
Interest Income:
Loans including fees	$	137,533		$	175,786		$	278,300		$	367,058
Investments securities		48,799			38,115			99,626			77,447
Loans held for sale		833			92			997			1,492

Total interest income		187,165			213,993			378,923			445,997

Interest Expense:
Deposits		49,982			60,055			102,890			135,297
Borrowings		17,895			28,252			38,548			60,158

Total interest expense		67,877			88,307			141,438			195,455

Net interest income		119,288			125,686			237,485			250,542
Provision for credit losses		85,000			25,000			151,000			40,800

Net interest income after provision for credit losses		34,288			100,686			86,485			209,742

Non-interest Income:
Deposit service fees		29,984			29,943			57,943			58,376
Loan related fees		6,350			7,891			12,832			14,749
Wealth and investment services		6,081			7,634			11,831			14,590
Mortgage banking activities		3,433			104			4,039			844
Increase in cash surrender value of life insurance		2,665			2,623			5,257			5,204
Impairment losses on investment securities		(27,110	)		(54,924	)		(27,110	)		(56,177	)
Net (loss) gain on the sale of investment securities		(13,593	)		126			(9,135	)		249
Gain on the exchange of trust preferred securities for common stock		24,336			—			24,336			—
Gain on early extinguishment of subordinated notes		—			—			5,993			—
Gain on Visa share redemption		1,907			—			1,907			1,625
Other income		1,325			854			1,600			2,638

Total non-interest income		35,378			(5,749	)		89,493			42,098

Non-interest Expenses:
Compensation and benefits		59,189			62,866			115,658			126,309
Occupancy		13,594			13,128			27,889			26,810
Furniture and equipment		15,288			15,634			30,428			30,794
Intangible assets amortization		1,450			1,464			2,913			3,012
Marketing		3,196			4,940			6,302			8,583
Outside services		3,394			3,706			7,178			7,859
FDIC deposit insurance assessment		5,959			344			10,549			698
FDIC special deposit insurance assessment		8,000			—			8,000			—
Goodwill impairment		—			8,500			—			8,500
Severance and other costs		1,313			9,368			1,553			8,718
Foreclosed and repossessed asset write-downs		2,829			484			6,279			717
Foreclosed and repossessed asset expenses		1,799			1,068			2,978			1,348
Other expenses		14,066			16,005			28,366			30,063

Total non-interest expenses		130,077			137,507			248,093			253,411

Loss from continuing operations before income tax (benefit) expense		(60,411	)		(42,570	)		(72,115	)		(1,571	)
Income tax (benefit) expense		(28,536	)		(14,285	)		(29,129	)		18

Loss from continuing operations		(31,875	)		(28,285	)		(42,986	)		(1,589	)
Income (loss) from discontinued operations, net of tax		313			(439	)		313			(2,563	)

Consolidated net loss		(31,562	)		(28,724	)		(42,673	)		(4,152	)
Less: Net income (loss) attributable to noncontrolling interests		—			1			13			(8	)

Net loss attributable to Webster Financial Corporation		(31,562	)		(28,725	)		(42,686	)		(4,144	)
Preferred stock dividends and accretion of preferred stock discount and gain on extinguishment		48,361			(215	)		37,932			(431	)

Net income (loss) applicable to common shareholders	$	16,799		$	(28,940	)	$	(4,754	)	$	(4,575	)

See accompanying Notes to Condensed Consolidated Financial Statements.

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS, continued


	Three months ended June 30,					Six months ended June 30,
*(In thousands, except per share amounts)*	2009		2008			2009			2008
Basic:
Income (loss) from continuing operations, per common share	$	0.30	$	(0.55	)	$	(0.10	)	$	(0.04	)
Income (loss) from discontinued operations, net of tax per common share		0.01		(0.01	)		0.01			(0.05	)

Net income (loss) attributable to Webster Financial Corporation, per common share	$	0.31	$	(0.56	)	$	(0.09	)	$	(0.09	)
Diluted:
Income (loss) from continuing operations, per common share	$	0.30	$	(0.55	)	$	(0.10	)	$	(0.04	)
Income (loss) from discontinued operations, net of tax per common share		0.01		(0.01	)		0.01			(0.05	)

Net income (loss) attributable to Webster Financial Corporation, per common share	$	0.31	$	(0.56	)	$	(0.09	)	$	(0.09	)

Dividends per common share	$	0.01	$	0.30		$	0.02		$	0.60

See accompanying Notes to Condensed Consolidated Financial Statements.

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


	Six months ended June 30, 2009
(In thousands, except share and per share data)	Preferred Stock			Common Stock		Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Non controlling interests		Total
Balance, December 31, 2008	$	616,326		$	566	$	731,681		$	781,106		$	(149,650	)	$	(105,910	)	$	9,619	$	1,883,738
Cumulative effect of change in accounting principle		—			—		—			11,431			—			(11,431	)		—		—
Comprehensive income (loss):
Net loss		—			—		—			(42,686	)		—			—			13		(42,673	)
Other comprehensive loss, net of taxes		—			—		—			—			—			50,469			—		50,469

Comprehensive loss																					7,796
Dividends paid on common stock of $.01 per share		—			—		—			(1,055	)		—			—			—		(1,055	)
Dividends paid on Series A preferred stock $21.25 per share		—			—		—			(9,558	)		—			—			—		(9,558	)
Dividends incurred on Series B preferred stock $12.50 per share		—			—		—			(10,000	)		—			—			—		(10,000	)
Subsidiary preferred stock dividends		—			—		—			(431	)		—			—			—		(431	)
Repurchase of 6,123 common shares		—			—		—			—			(51	)		—			—		(51	)
Accretion of preferred stock discount		872			—		—			(872	)		—			—			—		—
Stock-based compensation expense		—			—		1,246			—						—			—		1,246
Restricted stock grants and expense		—			—		5,860			222			(2,847	)		—			—		3,235
Conversion of Series A preferred stock		(168,500	)		60		49,069			58,792			—			—			—		(60,579	)
Extinguishment of Trust Preferred Securities		—			53		36,780			—			—			—			—		36,833
Additional issuance costs associated with the issuance of the Series B preferred stock and warrant		—			—		(24	)		—			—			—			—		(24	)

Balance, June 30, 2009	$	448,698		$	679	$	824,612		$	786,949		$	(152,548	)	$	(66,872	)	$	9,632	$	1,851,150



	Six months ended June 30, 2008
(In thousands, except share and per share data)	Preferred Stock		Common Stock		Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Non controlling interests			Total
Balance, December 31, 2007	$	—	$	566	$	734,604		$	1,183,621		$	(166,263	)	$	(15,896	)	$	9,615		$	1,746,247
Comprehensive income:
Net income (loss)		—		—		—			(4,144	)		—			—			(8	)		(4,152	)
Other comprehensive loss, net of taxes		—		—		—			—			—			(30,244	)		—			(30,244	)

Comprehensive income																					(34,396	)
Dividends paid on common stock of $.60 per share		—		—		—			(31,495	)		—			—			—			(31,495	)
Dividends paid on consolidated affiliate preferred stock		—		—		—			(431	)		—			—			—			(431	)
Exercise of stock options, including excess tax benefits		—		—		(73	)		—			513			—			—			440
Repurchase of 11,447 common shares		—		—		—			—			(349	)		—			—			(349	)
Stock-based compensation expense		—		—		1,327			—			—			—			—			1,327
Restricted stock grants and expense		—		—		532			—			2,660			—			—			3,192
Issuance of Series A preferred stock		225,000		—		(7,300	)		—			—			—			—			217,700
EITF 06-4 Adoption		—		—		—			(923	)		—			—			—			(923	)

Balance, June 30, 2008	$	225,000	$	566	$	729,090		$	1,146,628		$	(163,439	)	$	(46,140	)	$	9,607		$	1,901,312

See accompanying Notes to Condensed Consolidated Financial Statements.

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six months ended June 30,
*(In thousands)*	2009			2008
Operating Activities:
Net loss	$	(42,673	)	$	(4,152	)
Income (loss) from discontinued operations, net of tax		313			(2,563	)

Loss from continuing operations		(42,986	)		(1,589	)
Adjustments to reconcile loss from continuing operations to net cash (used for) provided by operating activities:
Provision for credit losses		151,000			40,800
Depreciation and amortization		29,742			29,039
Gain on early extinguishment of subordinated notes		(4,504	)		—
Gain on exchange of trust preferred securities for common stock		(24,336	)		—
Stock-based compensation		4,481			4,519
Foreclosed and repossessed asset write-downs		6,279			925
Write-down of fixed assets		1,150			—
Goodwill impairment		—			8,500
Impairment losses on investment securities		27,110			56,177
Net loss (gain) on the sale of investment securities		9,135			(316	)
Decrease in trading securities		76			60
Increase in cash surrender value of life insurance		(5,257	)		(5,204	)
Net (increase) decrease in loans held for sale		(89,412	)		217,596
Net increase in prepaid expenses and other assets		(45,074	)		(9,691	)
Net decrease in accrued expenses and other liabilities		(41,434	)		(18,500	)

Net cash (used for) provided by operating activities		(24,030	)		322,316

Investing Activities:
Net decrease in short-term investments		13,938			2,116
Purchases of securities, available for sale		(688,091	)		(339,438	)
Proceeds from maturities and principal payments of securities, available for sale		99,085			21,083
Proceeds from sales of securities, available for sale		410,336			6,277
Purchases of held-to-maturity securities		(286,084	)		(75,163	)
Proceeds from maturities and principal payments of held-to-maturity securities		242,530			116,252
Purchases of FHLB and FRB stock		(3,000	)		(21,248	)
Net decrease (increase) in loans		264,214			(341,820	)
Proceeds from sale of foreclosed properties		11,789			5,855
Net purchases of premises and equipment, net of sales proceeds		(13,283	)		(15,730	)

Net cash provided by (used for) investing activities		51,434			(641,816	)

Financing Activities:
Net increase (decrease) in deposits		1,289,693			(277,591	)
Proceeds from FHLB advances		9,420,286			28,275,925
Repayments of FHLB advances		(10,091,665	)		(27,906,974	)
Net (decrease) increase in securities sold under agreements to repurchase and other short-term borrowings		(554,912	)		37,322
Repayment of long-term debt		(15,928	)		—
Issuance costs for Series B Preferred Stock		(24	)		—
Issuance of Series A Preferred Stock, net		—			217,700
Conversion of Series A Preferred Stock		(58,975	)		—
Cash dividends to common shareholders		(1,055	)		(31,495	)
Cash dividends to preferred shareholders of consolidated affiliate		(431	)		(431	)
Cash dividends paid to preferred shareholders		(19,225	)		—
Exercise of stock options		—			440
Common stock repurchased		(51	)		(349	)

Net cash (used for) provided by financing activities		(32,287	)		314,547

See accompanying Notes to Condensed Consolidated Financial Statements.

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued


	Six months ended June 30,
*(In thousands)*	2009			2008

Cash Flows from Discontinued Operations:
Operating activities	$	313		$	(2,141	)
Proceeds from sale of discontinued operations		—			23,920

Net cash provided by discontinued operations		313			21,779

Net change in cash and cash equivalents		(4,570	)		16,826
Cash and cash equivalents at beginning of period		259,208			306,654

Cash and cash equivalents at end of period	$	254,638		$	323,480


Supplemental disclosure of cash flow information:
Interest paid	$	147,672		$	199,203
Income taxes paid		1,847			24,190

Noncash investing and financing activities:
Mortgage loans securitized and transferred to mortgage-backed securities - GSE held-to-maturity	$	203,030		$	—
Transfer of loans and leases, net to foreclosed properties		21,253			15,478
Issuance of loan to finance sale of subsidiary		—			18,000
Gain on early extinguishment of fair value hedge of subordinated debt		1,489			—
Transfer of property from premises and equipment to assets held-for-disposition		1,632			900

Extinguishment of junior subordinated notes through issuance of common stock
Carrying value of junior subordinated notes extinguished		(63,773	)		—
Fair value of common stock issued		39,307			—
Recognition of deferred gain on cash flow hedge		(674	)		—

Conversion of Series A Preferred Stock:
Carrying value of Series A Preferred Stock converted, net of cash paid upon conversion		(103,979	)		—
Fair value of common stock issued		45,187			—

Sale transactions:
Fair value of noncash assets sold	$	—		$	40,833
Fair value of liabilities extinguished		—			7,117

See accompanying Notes to Condensed Consolidated Financial Statements.

WEBSTER FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1: Summary of Significant Accounting Policies

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

Basis of Presentation. The condensed consolidated financial statements in this Quarterly Report on Form 10-Q include the accounts of Webster and all other entities in which Webster has a controlling financial interest (collectively referred to as “Webster” or the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and financial reporting policies Webster follows conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry.

The condensed consolidated financial statements in this Quarterly Report on Form 10-Q have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments were of a normal and recurring nature. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States 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, 2008, included in Webster’s Annual Report on Form 10-K filed with the SEC on March 2, 2009 (the “2008 Form 10-K”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period. Webster has evaluated subsequent events for potential recognition and/or disclosure through August 5, 2009, the date the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q were filed with the SEC.

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 credit losses, the fair values of financial instruments, the deferred tax asset valuation allowance and the status of goodwill evaluation are particularly subject to change.

Comprehensive Income. Comprehensive income includes all changes in equity during a period, except those resulting from transactions with shareholders. Besides net income, other components of Webster’s comprehensive income include the after tax effect of changes in the net unrealized gain/loss on securities available for sale, changes in the net actuarial gain/loss on defined benefit post-retirement benefit plans and changes in the accumulated gain/loss on effective cash flow hedging instruments. Comprehensive income for the six months ended June 30, 2009 and 2008 is reported in the accompanying condensed consolidated statements of changes in equity.

Earnings Per Share. Effective January 1, 2009, Webster adopted Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) No. Emerging Issues Task Force Issued No. (“ETIF”) 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. Accordingly, effective January 1, 2009, earnings per common share is computed using the two-class method prescribed by the Statement of Financial Accounting Standards (“SFAS”) No. (128), “Earnings Per Share.” (“SFAS No. 128”) All previously reported earnings or losses per common share information has been retrospectively adjusted to conform to the new computation method.

Reclassifications. Certain items previously reported have been reclassified to conform to the current period’s condensed consolidated financial statement presentation.

NOTE 2: New Accounting Standards

Recently Issued Accounting Standards

SFAS No. 166, “Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 amends SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks

related to transferred financial assets. SFAS 166 eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. SFAS 166 also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. SFAS 166 will be effective January 1, 2010 and is not expected to have a significant impact on the Company’s condensed consolidated financial statements.

SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). SFAS 167 amends FASB Interpretation (“FIN”) No. 46 (“FIN 46”) FIN 46 (Revised December 2003), “Consolidation of Variable Interest Entities,” to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. SFAS 167 requires additional disclosures about the reporting entity’s involvement with variable interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. SFAS 167 will be effective January 1, 2010 and is not expected to have a significant impact on the Company’s condensed consolidated financial statements.

SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a Replacement of FASB Statement No. 162”(“SFAS 168”). SFAS 168 replaces SFAS 162, “The Hierarchy of Generally Accepted Accounting Principles” and establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with generally accepted accounting principles. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative guidance for SEC registrants. All guidance contained in the Codification carries an equal level of authority. All non-grandfathered, non-SEC accounting literature not included in the Codification is superseded and deemed non-authoritative. SFAS 168 will be effective for the Company’s condensed consolidated financial statements for periods ending after September 15, 2009. SFAS 168 is not expected to have a significant impact on the Company’s condensed consolidated financial statements.

Recently Adopted Accounting Standards

SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB Statement No. 51” (“SFAS 160”). SFAS 160 amends Accounting Research Bulletin (“ARB”) No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that a non-controlling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the condensed consolidated financial statements. Among other requirements, SFAS 160 requires condensed consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the condensed consolidated income statement, of the amounts of condensed consolidated net income attributable to the parent and to the non-controlling interest. SFAS 160 became effective for the Company on January 1, 2009 and did not have a significant impact on the Company’s condensed consolidated financial statements.

SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 amends SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS 133”) to amend and expand the disclosure requirements of SFAS 133 to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under SFAS 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. To meet those objectives, SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 became effective for the Company on January 1, 2009 and the required disclosures are reported in Note 17 - Derivative Financial Instruments.

SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. SFAS 165 defines (i) the period after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 became effective for the Company for periods ending after June 15, 2009. SFAS 165 did not have a significant impact on the Company’s condensed consolidated financial statements.

Financial Accounting Standards Board Staff Positions and Interpretations

FSP SFAS 132R-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSP SFAS 132R-1”). FSP SFAS 132R-1 provides guidance related to an employer’s disclosures about plan assets of defined benefit pension or other post-retirement benefit plans. Under FSP SFAS 132R-1, disclosures should provide users of financial statements with an understanding of how investment allocation decisions are made, the factors that are pertinent to an understanding of investment policies and strategies, the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets, the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period and significant concentrations of risk within plan assets. The disclosures required by FSP SFAS 132R-1 will be included in the Company’s consolidated financial statements beginning with the financial statements for the year-ended December 31, 2009.

FSP SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP SFAS 157-4”). FSP SFAS 157-4 affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. FSP SFAS 157-4 requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence. FSP SFAS 157-4 also amended SFAS 157, “Fair Value Measurements,” to expand certain disclosure requirements. The Company adopted the provisions of FSP SFAS 157-4 during the second quarter of 2009. Adoption of FSP SFAS 157-4 did not significantly impact the Company’s condensed consolidated financial statements.

FSP SFAS 115-2 and SFAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP SFAS 115-2 and SFAS 124-2”). FSP SFAS 115-2 and SFAS 124-2 (i) changes existing guidance for determining whether an impairment is other-than-temporary to debt securities and (ii) replaces the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under FSP SFAS 115-2 and SFAS 124-2, declines in the fair value of held-to-maturity and available for sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. The Company adopted the provisions of FSP SFAS 115-2 and SFAS 124-2 during the second quarter of 2009. Adoption of FSP SFAS 115-2 and SFAS 124-2 resulted in the reclassification of $17.6 million ($11.4 million, net of tax) of non-credit related OTTI to OCI which had previously been recognized in earnings and is disclosed in Note 4 - Investment Securities.

FSP SFAS 107-1 and Accounting Principles Board Opinion No. (“APB 28-1”), “Interim Disclosures about Fair Value of Financial Instruments.” (“FSP SFAS 107-1 and APB 28-1”) FSP SFAS 107-1 and APB 28-1 amends SFAS 107, “Disclosures about Fair Value of Financial Instruments,” (“SFAS 107”) to require an entity to provide disclosures about the fair value of financial instruments in interim financial information and amends APB 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods. The new interim disclosures required by FSP SFAS 107-1 and APB 28-1 are included in Note 12 - Fair Value Measurements.

FSP SFAS 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” (“FSP SFAS 141R-1”). FSP SFAS 141R-1 amends the guidance in SFAS 141R to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with SFAS 5, “Accounting for Contingencies,” and FIN No. 14, “Reasonable Estimation of the Amount of a Loss.” FSP SFAS 141R-1 removes subsequent accounting guidance for assets and liabilities arising from contingencies from SFAS 141R and requires entities to develop a systematic and rational basis for subsequently measuring and accounting for assets and liabilities arising from contingencies. FSP SFAS 141R-1 eliminates the requirement to disclose an estimate of the range of outcomes of recognized contingencies at the acquisition date. For unrecognized contingencies, entities are required to include only the disclosures required by SFAS 5. FSP SFAS 141R-1 also requires that contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination be treated as contingent consideration of the acquirer and should be initially and subsequently measured at fair value in accordance with SFAS 141R. FSP SFAS 141R-1 is effective for assets or liabilities arising from contingencies the Company acquires in business combinations occurring after January 1, 2009.

NOTE 3: Subsequent Events

Capital Transaction

On July 27, 2009, Webster announced that Warburg Pincus (“Warburg”), the global private equity firm agreed to invest $115 million in Webster through a direct purchase of newly issued shares of common stock, junior non-voting preferred stock, and warrants. Warburg is acquiring 11.5 million shares of common stock from Webster, upon receipt of all necessary approvals. Warburg initially funded approximately $40.2 million of its investment and received approximately 4 million shares of common stock and 3 million warrants. Upon initial funding, Warburg will have a 5.9 percent ownership of Webster’s common stock outstanding prior to bank regulatory and shareholder approvals. Warburg will fund the remaining $74.8 million and be issued the remaining common stock, junior non-voting preferred stock, and warrants, following receipt of necessary antitrust and federal bank regulatory approvals.

Following the funding of the remaining portion, Warburg will have a 15.2 percent ownership of Webster’s common stock outstanding. A portion of Warburg’s investment that is funded following the receipt of regulatory approvals will initially be held in the form of junior non-voting preferred stock which will automatically convert into Webster common stock upon receiving the requisite approval of Webster’s shareholders. The preferred stock initially will have a dividend that mirrors any dividend payable on the common stock. If the requisite shareholder approval is not received, and the preferred shares are therefore still outstanding after February 28, 2010, the preferred stock’s annual non-cumulative dividend will increase to 8 percent per annum. The preferred stock is expected to qualify for Tier I capital treatment.

As part of the transaction, Warburg will receive 8.6 million seven-year Class A Warrants. The Class A Warrants will initially have a strike price of $10.00 per share, with the strike price increasing to $11.50 per share twenty four months after this transaction and to $13.00 per share forty eight months after this transaction. Warburg also will receive 5.5 million seven-year Class B Warrants with a strike price of $2.50 per share which will only become exercisable and transferable if, following the receipt of necessary regulatory approvals, shareholder approval is not received by February 28, 2010. The Class B Warrants will expire immediately upon receiving shareholder approval.

The investment held by Warburg including the exercise of the Class A and Class B warrants is subject to Warburg not owning more than 23.9% of Webster’s voting securities as calculated under applicable regulations of the Board of Governors of the Federal Reserve System.

Other

Subsequent events have been evaluated through August 5, 2009, the date financial statements are filed with the SEC. Through that date, except for the transaction previously discussed, there were no additional events requiring disclosure.

NOTE 4: Investment Securities

The following table presents a summary of the cost and fair value of Webster’s investment securities. For securities classified as available for sale, the following table shows the unrealized gains and losses (pre-tax) in accumulated other comprehensive income, by security type.


	As of June 30, 2009											As of December 31, 2008
*(In thousands)*	Par Value		Amortized Cost ^(a)(b)		Unrealized					Estimated Fair Value		Par Value		Amortized Cost ^(a)(b)		Unrealized					Estimated Fair Value
*(In thousands)*	Par Value		Amortized Cost ^(a)(b)		Gains		Losses			Estimated Fair Value		Par Value		Amortized Cost ^(a)(b)		Gains		Losses			Estimated Fair Value

Trading:
Municipal bonds and notes										$	—										$	77


Available for Sale:
Government Treasury Bills	$	500	$	500	$	—	$	—		$	500	$	2,000	$	1,998	$	2	$	—		$	2,000
Corporate bonds and notes ^(a)		256,295		139,417		9,490		(34,154	)		114,753		359,996		159,610		—		(66,092	)		93,518
Equity securities ^(b)		N/A		15,373		627		(1,341	)		14,659		N/A		30,925		2,024.00		(2,174	)		30,775
Mortgage-backed securities - GSE		1,150,334		1,169,901		27,540		(2,093	)		1,195,348		970,905		972,323		16,592		(152	)		988,763
Mortgage-backed securities - other		135,000		133,862		—		(53,250	)		80,612		135,000		133,814		—		(60,165	)		73,649

Total available for sale	$	1,542,129	$	1,459,053	$	37,657	$	(90,838	)	$	1,405,872	$	1,467,901	$	1,298,670	$	18,618	$	(128,583	)	$	1,188,705


Held-to-maturity:
Municipal bonds and notes	$	694,984	$	691,240	$	8,576	$	(17,000	)	$	682,816	$	703,944	$	700,365	$	9,627	$	(14,481	)	$	695,511
Mortgage-backed securities - GSE		2,003,026		2,015,508		47,904		(5,632	)		2,057,780		1,749,399		1,751,679		43,912		—			1,795,591
Mortgage-backed securities - other		61,217		61,217		—		(1,108	)		60,109		70,493		70,467		—		(1,824	)		68,643

Total held-to-maturity	$	2,759,227	$	2,767,965	$	56,480	$	(23,740	)	$	2,800,705	$	2,523,836	$	2,522,511	$	53,539	$	(16,305	)	$	2,559,745

Total Investment Securities	$	4,301,356	$	4,227,018	$	94,137	$	(114,578	)	$	4,206,577	$	3,991,737	$	3,821,181	$	72,157	$	(144,888	)	$	3,748,527

(a)	Amortized cost is net of $105.9 million of credit related other-than-temporary impairments at June 30, 2009.

(b)	Amortized cost is net of $34.9 million of other-than-temporary impairments at June 30, 2009.

Management evaluates all investment securities with an unrealized loss in value, whether caused by adverse interest rates, credit movements or some other factor to determine if the loss is other-than-temporary. The following table provides information on the gross unrealized losses and fair value of Webster’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 June 30, 2009.


	As of June 30, 2009
	Less Than Twelve Months					Twelve Months or Longer					Total
*(In thousands)*	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

Available for Sale:
Corporate bonds and notes	$	22,745	$	(6,267	)	$	71,411	$	(27,887	)	$	94,156	$	(34,154	)
Equity securities		7,274		(1,274	)		886		(67	)		8,160		(1,341	)
Mortgage-backed securities-GSE		292,043		(2,093	)		—		—			292,043		(2,093	)
Mortgage-backed securities-other		—		—			80,612		(53,250	)		80,612		(53,250	)

Total available for sale	$	322,062	$	(9,634	)	$	152,909	$	(81,204	)	$	474,971	$	(90,838	)


Held-to-maturity:
Municipal bonds and notes	$	140,110	$	(2,670	)	$	223,407	$	(14,330	)	$	363,517	$	(17,000	)
Mortgage-backed securities-GSE		414,826		(5,632	)		—		—			414,826		(5,632	)
Mortgage-backed securities-other		—		—			60,109		(1,108	)		60,109		(1,108	)

Total held-to-maturity	$	554,936	$	(8,302	)	$	283,516	$	(15,438	)	$	838,452	$	(23,740	)


Total investment securities	$	876,998	$	(17,936	)	$	436,425	$	(96,642	)	$	1,313,423	$	(114,578	)

The following table provides information on the gross unrealized losses and fair value of Webster’s investment securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment security category and length of time that individual investment securities have been in a continuous unrealized loss position at December 31, 2008.


	As of December 31, 2008
	Less Than Twelve Months					Twelve Months or Longer					Total
*(In thousands)*	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

Available for Sale:
Corporate bonds and notes	$	5,116	$	(8,734	)	$	49,651	$	(57,358	)	$	54,767	$	(66,092	)
Equity securities		9,028		(2,171	)		15		(3	)		9,043		(2,174	)
Mortgage-backed securities-GSE		17,843		(8	)		45,942		(144	)		63,785		(152	)
Mortgage-backed securities-other		50,319		(24,399	)		23,330		(35,766	)		73,649		(60,165	)

Total available for sale	$	82,306	$	(35,312	)	$	118,938	$	(93,271	)	$	201,244	$	(128,583	)


Held-to-maturity:
Municipal bonds and notes	$	273,335	$	(10,617	)	$	56,820	$	(3,864	)	$	330,155	$	(14,481	)
Mortgage-backed securities- other		—		—			68,643		(1,824	)		68,643		(1,824	)

Total held-to-maturity	$	273,335	$	(10,617	)	$	125,463	$	(5,688	)	$	398,798	$	(16,305	)

Total investment securities	$	355,641	$	(45,929	)	$	244,401	$	(98,959	)	$	600,042	$	(144,888	)

Management conducts a formal review of investment securities on a quarterly basis for the presence of other-than-temporary impairment (“OTTI”). For the second quarter of 2009, Webster adopted FSP SFAS 115-2 and SFAS 124-2, issued by the FASB on April 9, 2009. Management assesses whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the balance sheet date. Under these circumstances as required by the new FSP, OTTI is considered to have occurred (1) if Webster intends to sell the security; (2) if it is “more likely than not” that Webster will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. The “more likely than not” criteria is a lower threshold than the “probable” criteria used under previous guidance.

The FSP requires that credit-related OTTI is recognized in earnings while non-credit related OTTI on securities not expected to be sold is recognized in other comprehensive income (“OCI”). Non-credit related OTTI is caused by other factors, including illiquidity. For securities classified as held-to-maturity (“HTM”), the amount of OTTI recognized in OCI is accreted to the credit-adjusted expected cash flow amounts of the securities over future periods. Non-credit related OTTI recognized in earnings previous to April 1, 2009 is reclassified from retained earnings to accumulated OCI as a cumulative effect adjustment. The Company adopted this FSP effective April 1, 2009. The adoption of this FSP resulted in the reclassification of $17.6 million, ($11.4 million, net of tax) of non-credit related OTTI to OCI which had previously been recognized in earnings.

As stated in Webster’s 2008 Annual Report on Form 10-K, management’s OTTI evaluation process also follows the guidance of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, EITF 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets”, and FSP No. EITF 99-20-1, “Amendments to the Impairment and Interest Income Measurement Guidance of EITF Issue No. 99-20” (“FSP EITF 99-20-1”). This guidance requires the Company to take into consideration current market conditions, fair value in relationship to cost, extent and nature of change in fair value, issuer rating changes and trends, volatility of earnings, current analysts’ evaluations, all available information relevant to the collectability of debt securities, Webster’s ability and intent to hold investments until a recovery of fair value, which may be maturity, and other factors when evaluating for the existence of OTTI in its securities portfolio. FSP EITF 99-20-1 was issued on January 12, 2009 and is effective for reporting periods ending after December 15, 2008. This FSP amends EITF 99-20 by eliminating the requirement that a holder’s best estimate of cash flows be based upon those that a market participant would use. Instead, the FSP requires that OTTI be recognized as a realized loss through earnings when there has been an adverse change in the holder’s expected cash flows such that it is “probable” that the full amount will not be received. This requirement is consistent with the impairment model in SFAS 115.

In addition, the disclosure and related discussion of unrealized losses is presented pursuant to FSP FAS 115-1 and FAS 124-1, (“EITF 03-1”) and EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“ETIF 03-1”). FSP FAS 115-1 and FAS 124-1 replaces certain impairment evaluation guidance of EITF 03-1; however, the disclosure requirements of EITF 03-1 remain in effect. This FSP addresses the determination of when an investment is considered impaired, whether the impairment is considered to be other-than-temporary, and the measurement of an impairment loss. The FSP also supersedes EITF Topic No. D-44, “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value”, and clarifies that an impairment loss should be recognized no later than when the impairment is deemed other-than-temporary, even if a decision to sell an impaired security has not been made.

For the three and six months ended June 30, 2009, Webster recognized OTTI of $27.1 million. The OTTI charge was comprised of a credit related OTTI charge of $23.6 million for certain pooled trust preferred securities and a $3.5 million OTTI charge on an equity security. OTTI charges were recognized in earnings for these securities as management concluded that it is more likely than not that the security will be sold before recovery of the cost basis in the security.

For all security types discussed below where no OTTI is considered necessary at June 30, 2009, management applied the criteria of FSP FAS 115-2 and FAS 124-1 to each investment individually. That is, for each security evaluated, management concluded that it does not intend to sell the security and it is not more likely than not that management will be required to sell the security before recovery of its amortized cost basis and as such OTTI was not recognized in earnings.

The following summarizes, by investment security type, the basis for the conclusion that the applicable investment securities within the Company’s available for sale portfolio were not other-than-temporarily impaired at June 30, 2009:

Corporate bonds and notes

The unrealized losses on the Company’s investment in corporate bonds and notes decreased to $34.2 million at June 30, 2009 from $66.1 million at December 31, 2008. This portfolio consists of various trust preferred securities, both pooled and single issuers, that are investment grade, below investment grade and unrated.

Single Issuer—The single issuer trust preferred portfolio totals $31.7 million in total fair value and accounts for $23.9 million of the total unrealized losses at June 30, 2009. The single issuer portfolio consists mainly of three large cap, money center financial institutions and one mid-size regional financial institution. During the quarter, two of the issuers were downgraded. However impairment was not warranted due to the issuers’ continued ability to service their debt and indications of stabilization in their capital structures, as evidenced by the U.S. Treasury’s purchase of CPP preferred stock in each institution. Unrealized losses for these institutions was $9.8 million at June 30, 2009

Pooled Trust Preferred Securities—The pooled trust preferred portfolio totals $83.0 million in total fair value and accounts for $10.3 million of the total unrealized losses at June 30, 2009. The pooled trust preferred portfolio consists of various classes in fifteen CDO’s containing predominantly bank and insurance collateral. The unrealized loss is attributable primarily to changes in interest rates, including a liquidity spread premium to reflect the inactive and illiquid nature of the trust preferred securities market at this time. To determine expected credit losses, management compared amortized cost to the present value of cash flows adjusted for deferrals and defaults using the purchased discount margin. Other factors considered include an analysis of excess subordination and temporary interest shortfall coverage. Based on the valuation analysis as of June 30, 2009 management expects to fully recover amortized cost. However, additional interest deferrals and /or defaults could result in future other than temporary impairment charges. See Note 12 – Fair Value Measurements for additional information on pooled trust preferred securities.

The Company does not consider these investments to be other-than-temporarily impaired at June 30, 2009.

Equity securities

The unrealized losses on the Company’s investment in equity securities decreased to $1.3 million at June 30, 2009 from $2.2 million at December 31, 2008 after the other-than-temporary impairment charge of $3.5 million for the three and six months ended June 30, 2009. This portfolio consists primarily of investments in the common stock of small capitalization financial institutions based in New England ($12.1 million of the total fair value and $1.3 million of the total unrealized losses at June 30, 2009), auction rate preferred securities ($2.0 million of the total fair value at June 30, 2009), perpetual preferred stock of government sponsored enterprises (“GSE”) ($0.5 million of the total fair value at June 30, 2009), and perpetual preferred stock of a non-public financial institution (which during the quarter was deemed other-than-temporary impaired and has no fair value at June 30, 2009). 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. Based on that evaluation, management does not have the intent to sell the security and it is more likely than not it will not have to sell the security before recovery of its cost basis. The Company does not consider these investments to be other-than-temporarily impaired at June 30, 2009. For its investments in perpetual preferred stock, Webster evaluates these securities for other-than-temporary impairment using an impairment analysis that is applied to debt securities, which is consistent with SEC guidance.

Mortgage-backed securities (GSE) – The unrealized losses on the Company’s investment in residential mortgage-backed securities issued by the GSEs increased to $2.1 million at June 30, 2009 from $0.2 million at December 31, 2008. The contractual cash flows for these investments are performing as expected. As the decline in market value is attributable to changes in interest rates and not due to underlying credit deterioration, and because management does not have the intent to sell the security, and it is more likely than not it will not have to sell the security before recovery of its cost basis, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2009.

Mortgage-backed securities (other) – The unrealized losses on the Company’s investment in commercial mortgage-backed securities issued by entities other than GSEs decreased to $53.3 million at June 30, 2009 from $60.2 million at December 31, 2008. The contractual cash flows for these investments are performing as expected. As the decline in market value is attributable to changes in interest rates and not due to underlying credit deterioration, and because management does not have the intent to sell the security, and it is more likely than not it will not have to sell the security before recovery of its cost basis, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2009.

The following summarizes by investment security type the basis for the conclusion that the applicable investment securities within the Company’s held-to-maturity portfolio were not other-than-temporarily impaired at June 30, 2009:

Municipal bonds and notes – The unrealized losses on the Company’s investment in municipal bonds and notes increased to $17.0 million at June 30, 2009 from $14.5 million at December 31, 2008. Approximately $14.3 million of the $17.0 million unrealized losses at June 30, 2009 had been in an unrealized loss position for twelve consecutive months or longer as compared to $3.9 million of the $14.5 million at December 31, 2008. These securities are primarily insured AA and A rated general obligation bonds with stable ratings. The $14.3 million unrealized loss was concentrated in 221 municipal bonds and notes with a fair value of $223.4 million. Management does not have the intent to sell the security, and it is more likely than not it will not have to sell the security before recovery of its cost basis. The Company does not consider these investments to be other-than-temporarily impaired at June 30, 2009.

Mortgage-backed securities-(GSE) – The unrealized losses on the Company’s investment in residential mortgage-backed securities issued by the GSEs increased $5.6 million at June 30, 2009. The contractual cash flows for these investments are performing as expected. As the decline in market value is attributable to changes in interest rates and not due to underlying credit deterioration, and because management does not have the intent to sell the security and it is more likely than not it will not have to sell the security before recovery of its cost basis, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2009.

Mortgage-backed securities-(other) – The unrealized losses on the Company’s investment in residential mortgage-backed securities issued by entities other than GSEs decreased to $1.1 million at June 30, 2009 from $1.8 million at December 31, 2008. Approximately $1.1 million at June 30, 2009 had been in an unrealized loss position for twelve consecutive months or longer as compared to $1.8 million at December 31, 2008. These securities carry AAA ratings and are currently performing as expected. The $1.1 million unrealized loss was concentrated in three securities with a total fair value of $60.1 million. Management does not have the intent to sell the security, and it is more likely than not it will not have to sell the security before recovery of its cost basis. The Company does not consider these investments to be other-than-temporarily impaired at June 30, 2009.

There were no significant credit downgrades on these held-to-maturity securities during the second quarter of 2009, and they are currently performing as anticipated. Management does not consider these investments to be other-than-temporarily impaired and management does not have the intent to sell the security, and it is more likely than not it will not have to sell the security before recovery of its cost basis. Management expects that recovery of these temporarily impaired securities will occur over the weighted-average estimated remaining life of these securities.

The amortized cost and fair value of securities at June 30, 2009, by contractual maturity, are set forth below. 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.


	Available for Sale				Held-to-Maturity
*(Dollars in thousands)*	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities Available for Sale
Due in one year or less	$	500	$	500	$	7,154	$	7,161
Due after one year through five years		—		—		3,674		3,706
Due after five through ten years		24,023		7,665		468,231		481,029
Due after ten years		1,419,157		1,383,048		2,288,906		2,308,809

Totals	$	1,443,680	$	1,391,213	$	2,767,965	$	2,800,705

For the three and six months ended June 30, 2009 and 2008, proceeds from the sale of available for sale securities were $8.0 million and $410.3 million and $4.8 million and $6.3 million, respectively. The following tables summarize the impact of the recognition of other-than-temporary impairments and net realized gains and losses on sales of securities for the three and six months ended June 30, 2009.


	Three Months ended June 30,
	2009								2008
*(In thousands)*	Gains		Losses^(a)(b)			Net			Gains		Losses ^(a)(b)(c)			Net
Trading securities:
Municipal bonds and notes	$	—	$	—		$	—		$	145	$	(108	)	$	37
Other		—		—			—			—		—			—

Total trading		—		—			—			145		(108	)		37

Available for sale:
U.S. Government agency notes		—		—			—			23		—			23
Municipal bonds and notes		—		—			—			—		—			—
Corporate bonds and notes		—		(35,522	)		(35,522	)		—		(41,620	)		(41,620	)
Equity securities		97		(5,278	)		(5,181	)		80		(12,160	)		(12,080	)
Mortgage-backed securities		—		—			—			—		—			—

Total available for sale		97		(40,800	)		(40,703	)		103		(53,780	)		(53,677	)

Total	$	97	$	(40,800	)	$	(40,703	)	$	248	$	(53,888	)	$	(53,640	)

(a)	Other-than-temporary impairment charges for equity securities were $3.5 million and $12.1 million for the three months ended June 30, 2009 and 2008, respectively.

(b)	Other-than-temporary impairment charges for corporate bonds and notes were $23.6 million and $41.6 million for the three months ended June 30, 2009 and 2008, respectively.

(c)

Losses for the three months ended June 30, 2008 excluded other-than-temporary impairments of direct investments of $1.3 million. Direct investments are included in other assets in the accompanying condensed consolidated balance sheets. There were no other-than-temporary impairments of direct investments for the three months ended June 30, 2009.


	Six Months ended June 30,
	2009								2008
*(In thousands)*	Gains		Losses^(a)(b)			Net			Gains		Losses ^(a)(b)(c)			Net
Trading securities:
Municipal bonds and notes	$	—	$	(1	)	$	(1	)	$	372	$	(457	)	$	(85	)
Other		—		—			—			18		—			18

Total trading		—		(1	)		(1	)		390		(457	)		(67	)

Available for sale:
U.S. Government agency notes		—		—			—			23		—			23
Municipal bonds and notes		—		—			—			—		—			—
Corporate bonds and notes		—		(35,522	)		(35,522	)		286		(41,678	)		(41,392	)
Equity securities		303		(6,721	)		(6,418	)		80		(12,705	)		(12,625	)
Mortgage-backed securities		5,696		—			5,696			—		—			—

Total available for sale		5,999		(42,243	)		(36,244	)		389		(54,383	)		(53,994	)

Total	$	5,999	$	(42,244	)	$	(36,245	)	$	779	$	(54,840	)	$	(54,061	)

(a)	Other-than-temporary impairment charges for equity securities were $3.5 million and $12.6 million for the six months ended June 30, 2009 and 2008, respectively.

(b)	Other-than-temporary impairment charges for corporate bonds and notes were $23.6 million and $41.6 million for the six months ended June 30, 2009 and 2008, respectively.

(c)

Losses for the six months ended June 30, 2008 excluded other-than-temporary impairments of direct investments of $2.1 million. Direct investments are included in other assets in the accompanying condensed consolidated balance sheets. There were no other-than-temporary impairments of direct investments for the six months ended June 30, 2009.

To the extent that changes in interest rates, credit movements and other factors that influence the fair value of investments occur, the Company may be required to record impairment charges for other-than-temporary impairment in future periods. See pages 84-89 of Webster’s 2008 Annual Report on Form 10-K for additional information regarding other-than-temporary impairment charges taken by the Company for the year ended December 31, 2008.

The following is a roll forward of the amount of credit related OTTI recognized in earnings:


*(In thousands)*	Three months ended June 30, 2009			Six months ended June 30, 2009

Balance of credit related OTTI at beginning of period	$	155,910		$	173,496
Additions for credit related OTTI not previously recognized		23,610			23,610
Reduction for securities sold		(73,649	)		(73,649	)
Reduction for non-credit related OTTI previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost basis ^(a)		—			(17,586	)

Subtotal of additions		(50,039	)		(67,625	)

Balance of credit-related OTTI at June 30, 2009	$	105,871		$	105,871

(a)

Webster adopted FSP FAS 115-2 and FAS 124-2 on April 1, 2009. The reduction of non-credit related OTTI is related to the cumulative effect of the change in accounting principle of non-credit related OTTI when there is no intent to sell and no requirement to sell before recovery of the amortized cost basis of the investment.

See Note 12 - Fair Value Measurements for additional information related to the fair value of financial instruments held by Webster as of June 30, 2009.

NOTE 5: Loans, Net

A summary of loans, net follows:


	June 30, 2009				December 31, 2008
*(Dollars in thousands)*	Amount			%	Amount			%

Residential mortgage loans:
1-4 family	$	2,793,394		24.1	$	2,939,025		24.2
Permanent - NCLC		44,740		0.4		58,625		0.4
Construction		27,765		0.2		42,138		0.3
Liquidating portfolio - construction loans		6,540		0.1		18,735		0.2

Total residential mortgage loans		2,872,439		24.8		3,058,523		25.1

Consumer loans:
Home equity loans		2,851,008		24.6		2,952,366		24.2
Liquidating portfolio - home equity loans		249,086		2.2		283,645		2.3
Other consumer		27,350		0.2		28,886		0.3

Total consumer loans		3,127,444		27.0		3,264,897		26.8

Commercial loans:
Commercial non-mortgage		1,711,050		14.7		1,795,738		14.7
Asset-based loans		624,075		5.4		753,143		6.2
Equipment financing		985,430		8.5		1,022,718		8.4

Total commercial loans		3,320,555		28.6		3,571,599		29.3

Commercial real estate:
Commercial real estate		1,909,939		16.4		1,908,312		15.7
Commercial construction		184,256		1.6		165,610		1.3
Residential development		144,337		1.2		161,553		1.3

Total commercial real estate		2,238,532		19.2		2,235,475		18.3

Net unamortized premiums		13,364		0.1		14,580		0.1
Net deferred costs		38,368		0.3		42,517		0.4

Total net unamortized premiums and deferred costs		51,732		0.4		57,097		0.5

Total loans		11,610,702		100.0		12,187,591		100.0

Less: allowance for loan losses		(305,999	)			(235,329	)

Loans, net	$	11,304,703			$	11,952,262

Financial instruments with off-balance sheet risk

Webster is a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the condensed consolidated balance sheets.

The following table summarizes financial instruments with off-balance sheet risk:


*(In thousands)*	June 30, 2009		December 31, 2008
Unused commercial letters and lines of credit	$	2,096,969	$	2,196,514
Unused portion of home equity credit lines:
Continuing portfolio		1,837,039		1,954,163
Liquidating portfolio		16,226		21,792
Unadvanced portion of closed consumer construction loans		13,066		14,611
Unadvanced portion of closed commercial construction loans		172,727		262,234
Outstanding loan commitments		91,745		85,291

Total financial instruments with off-balance sheet risk	$	4,227,772	$	4,534,605

The interest rates for outstanding loan commitments are generally established shortly before closing. The interest rates on home equity lines of credit adjust with changes in the prime rate. At June 30, 2009, the fair value of financial instruments with off-balance sheet risk is considered insignificant to the condensed consolidated financial statements taken as a whole.

NOTE 6: Allowance for Credit Losses

The disruption and volatility in the domestic and global financial and capital markets that began in 2008 continued to affect the banking industry through the second quarter of 2009. There continues to be rising unemployment, a substantial increase in delinquencies, limited refinancing options, and continued declining real estate values. Webster is not immune to some negative consequences arising from overall economic weakness and, in particular, a sharp downturn in the housing market, both locally and nationally. Decreases in real estate values could adversely affect the value of property used as collateral for loans. Adverse changes in the economy may have a negative effect on the ability of Webster’s borrowers to make timely loan payments, which would have an adverse impact on the Company’s earnings. A further increase in loan delinquencies would decrease net interest income and increase loan losses, causing potential increases in the provision and allowance for credit losses.

The allowance for credit losses is maintained at a level that management believes is adequate to absorb probable losses inherent in the loan portfolio and in unfunded credit commitments. This allowance is increased by provisions charged to operating expense and by recoveries on loans previously charged-off and is reduced by charge-offs on loans.

A summary of the changes in the allowance for credit losses follows:


	Three months ended June 30,						Six months ended June 30,
*(In thousands)*	2009			2008			2009			2008

Continuing portfolio:
Beginning balance	$	226,562		$	138,191		$	191,426		$	138,180
Provision		74,327			25,000			128,161			40,800
Charge-offs:
Residential		(4,793	)		(1,036	)		(7,757	)		(2,516	)
Consumer		(10,242	)		(2,784	)		(16,783	)		(6,481	)
Commercial ^(a)		(20,604	)		(8,664	)		(31,209	)		(20,103	)
Residential development		(2,350	)		—			(2,398	)		—

Total charge-offs		(37,989	)		(12,484	)		(58,147	)		(29,100	)
Recoveries		1,259			1,290			2,719			2,117

Net charge-offs		(36,730	)		(11,194	)		(55,428	)		(26,983	)

Ending balance - continuing portfolio	$	264,159		$	151,997		$	264,159		$	151,997


Liquidating portfolio:
Beginning balance	$	44,367		$	42,117		$	43,903		$	49,906
Provision		10,673			—			22,539			—
Charge-offs:
NCLC		(3,387	)		(4,203	)		(5,473	)		(8,544	)
Consumer (home equity)		(10,825	)		(5,450	)		(20,736	)		(8,898	)

Total charge-offs		(14,212	)		(9,653	)		(26,209	)		(17,442	)
Recoveries		1,012			407			1,607			407

Net charge-offs		(13,200	)		(9,246	)		(24,602	)		(17,035	)

Ending balance - liquidating portfolio	$	41,840		$	32,871		$	41,840		$	32,871

Ending balance - allowance for loan losses	$	305,999		$	184,868		$	305,999		$	184,868


Reserve for unfunded credit commitments:^(b)
Beginning balance	$	10,800		$	9,500		$	10,500		$	9,500
Provision		—			—			300			—
Reduction of provision previously recorded		(762	)		—			(762	)		—

Ending balance reserve for unfunded commitments	$	10,038		$	9,500		$	10,038		$	9,500

Ending balance - allowance for credit losses	$	316,037		$	194,368		$	316,037		$	194,368

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

(b)	The reserve for unfunded credit commitments is reported as a component of accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets.

NOTE 7: Goodwill and Other Intangible Assets

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


*(In thousands)*	June 30, 2009		December 31, 2008

Balances not subject to amortization:
Goodwill	$	529,887	$	529,887

Balances subject to amortization:
Core deposit intangibles		29,862		32,741
Other identified intangibles		1,264		1,298

Total goodwill and other intangible assets	$	561,013	$	563,926

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


*(In thousands)*	June 30, 2009		December 31, 2008
Retail Banking	$	516,560	$	516,560
Other		13,327		13,327

Total goodwill	$	529,887	$	529,887

Webster tests its goodwill for impairment annually in its third quarter. Accounting principles generally accepted in the U.S. require additional testing if events or circumstances indicate that impairment may exist. A continuing period of market disruption, or further market capitalization to book value deterioration, may result in the requirement to continue to perform testing for impairment between annual assessments. Management will continue to monitor the relationship of the Company’s market capitalization to its book value, which management attributes primarily to financial services industry-wide factors and to evaluate the carrying value of goodwill. To the extent that testing results in the identification of impairment, the Company may be required to record charges for the impairment of goodwill. Management did not perform any additional testing during the first half of 2009, but continues to monitor market conditions. For additional information regarding the valuation of goodwill and impairment charges recorded for the year ended December 31, 2008, see pages 94-95 of Webster’s 2008 Annual Report on Form 10-K.

Amortization of intangible assets for the three and six months ended June 30, 2009, totaled $1.4 million and $2.9 million, respectively. Estimated annual amortization expense of current intangible assets with finite useful lives, absent any impairment or change in estimated useful lives, is summarized below.


*(In thousands)*
For years ending December 31,
2009 (full year)	$	5,755
2010		5,684
2011		5,684
2012		5,516
2013		5,015
Thereafter		6,385

NOTE 8: Deposits

The following table summarizes the period end balance and the composition of deposits:


	June 30, 2009				December 31, 2008
*(In thousands)*	Amount		Percentage of Total		Amount		Percentage of Total
Demand	$	1,595,390	12.1	%	$	1,493,296	12.6	%
Negotiable Order of Withdrawal (NOW)		1,954,359	14.8			1,271,569	10.7
Money market		1,618,910	12.3			1,356,360	11.4
Savings		2,778,970	21.1			2,361,169	19.9
Health savings accounts (HSA)		636,749	4.8			530,681	4.5
Retail certificates of deposit		4,422,033	33.6			4,677,615	39.3
Brokered deposits		168,171	1.3			194,200	1.6

Total	$	13,174,582	100.0	%	$	11,884,890	100.0	%

Interest expense on deposits is summarized as follows:


	Three months ended June 30,				Six months ended June 30,
*(In thousands)*	2009		2008		2009		2008
NOW	$	816	$	784	$	1,363	$	1,872
Money market		5,137		8,341		10,813		19,998
Savings		6,569		7,559		13,384		16,188
HSA		2,707		2,621		5,380		5,427
Retail certificates of deposit		33,443		38,915		69,000		87,583
Brokered deposits		1,310		1,835		2,950		4,229

Total	$	49,982	$	60,055	$	102,890	$	135,297

NOTE 9: Federal Home Loan Bank Advances

Advances payable to the Federal Home Loan Bank (“FHLB”) are summarized as follows:


	June 30, 2009					December 31, 2008
*(In thousands)*	Total Outstanding			Callable		Total Outstanding		Callable
Fixed Rate:
0.07 % to 5.96 % due in 2009	$	118,000		$	118,000	$	792,616	$	123,000
4.16 % to 8.44 % due in 2010		235,058			135,000		235,099		135,000
3.19 % to 6.60 % due in 2011		100,546			—		100,684		—
4.00 % to 4.00 % due in 2012		51,400			—		51,400		—
2.40 % to 5.49 % due in 2013		149,000			49,000		149,000		49,000
0.00 % to 6.00 % due after 2014		6,052			—		2,398		—

		660,056			302,000		1,331,197		307,000
Hedge accounting adjustments		(119	)		—		—		—
Unamortized premiums		3,186			—		4,799		—

Total advances	$	663,123		$	302,000	$	1,335,996	$	307,000

Webster Bank National Association (“Webster Bank”) had additional borrowing capacity from the FHLB of approximately $2.0 billion at June 30, 2009 and $1.6 billion at December 31, 2008. Advances are secured by a blanket lien against certain qualifying assets, principally residential mortgage loans. At June 30, 2009 and December 31, 2008, Webster Bank had unencumbered investment securities available to secure additional borrowings. If these securities had been used to secure FHLB advances, borrowing capacity at June 30, 2009 and December 31, 2008 would have been increased by an additional $1.6 billion and $1.0 billion, respectively. At June 30, 2009 and December 31, 2008, Webster Bank was in compliance with applicable FHLB collateral requirements.

NOTE 10: Securities Sold Under Agreements to Repurchase and Other Short-term Debt

The following table summarizes securities sold under agreements to repurchase and other short-term borrowings:


*(In thousands)*	June 30, 2009		December 31, 2008
Securities sold under agreements to repurchase	$	868,402	$	924,543
Federal Reserve term auction facility		—		150,000
Federal funds purchased		123,050		474,380
Treasury tax and loan		13,987		5,748
Other		7,500		13,180

		1,012,939		1,567,851
Unamortized premiums		2,160		3,120

Total	$	1,015,099	$	1,570,971

The following table sets forth certain information on short-term repurchase agreements:


*(Dollars in thousands)*	June 30, 2009			December 31, 2008
Quarter end balance	$	295,402		$	251,543
Quarter average balance		281,508			262,563
Highest month end balance during quarter		295,402			261,581
Weighted-average maturity (in months) at end of period		0.16			0.18
Weighted-average interest rate at end of period		0.44	%		0.88	%

NOTE 11: Long-Term Debt


*(In thousands)*	June 30, 2009			December 31, 2008
Subordinated notes (due January 2013)	$	177,480		$	200,000
Senior notes (due April 2014)		150,000			150,000
Junior subordinated debt to related capital trusts (due 2027-2037):
Webster Capital Trust IV		136,070			200,010
Webster Statutory Trust I		77,320			77,320
People’s Bancshares Capital Trust II		10,309			10,309
Eastern Wisconsin Bancshares Capital Trust II		2,070			2,070
NewMil Statutory Trust I		10,310			10,310

		563,559			650,019
Unamortized premiums, net		(365	)		(399	)
Hedge accounting adjustments		27,326			38,177

Total long-term debt	$	590,520		$	687,797

On March 10, 2009, the Company announced the commencement of a fixed price cash tender offer, which expired on March 18, 2009, for any and all of Webster Bank’s outstanding 5.875% Subordinated Notes due in 2013. The consideration paid per $1,000 of principal was $800 plus all accrued and unpaid interest. Holders tendered $22.5 million of the outstanding principal of the subordinated debt for a total payment of $18.3 million including $0.2 million of accrued interest, resulting in a $4.3 million gain. In connection with the tender offer, the Company terminated $25 million of the fair value hedge associated with the subordinated notes. The termination of that portion of the swap resulted in a net gain of $1.9 million. Both the net gain from the tender offer and the termination of the fair value hedge were recorded in the three months ended March 31, 2009. The pro-rata share of the gain not directly related to the debt redemption was $188,480 which was deferred and is being amortized over the remaining life of the subordinated notes. A total gain of $6.2 million was recognized in the accompanying condensed consolidated statement of operations for the six months ended June 30, 2009.

On May 28, 2009, the Company announced the commencement of an exchange offer, which expired on June 24, 2009, with holders of Webster’s 8.50% Series A Non-Cumulative Perpetual Convertible Preferred Stock (the “Series A Preferred Stock”) and Webster Capital Trust IV’s 7.65% Fixed to Floating Rate Trust Preferred Securities (the “Trust Preferred Securities”). See Note 13 Shareholders’ Equity for additional information related to the effect of the exchange offer on the Series A Preferred Stock.

The Company offered 82.0755 shares of its common stock plus accrued distributions in exchange for each $1,000 liquidation amount of the Trust Preferred Securities. Following the exchange, the Trust Preferred Securities held by Webster were used to liquidate Webster’s junior subordinated debentures of Webster Capital Trust IV. The exchange resulted in the liquidation of $63.9 million of Webster Capital Trust IV’s junior subordinated debentures and the issuance of 5.2 million shares of common stock at a fair value of $36.7 million net of issuance costs. The extinguishment of the Trust Preferred Securities resulted in the recognition of a $24.3 million net gain in the accompanying condensed consolidated statement of operations for the three and six months ended June 30, 2009.

NOTE 12: Fair Value Measurements

SFAS No. 157, “Fair Value Measurements” (“SFAS 157”) establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

•

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

•

Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

•

Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for financial instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Securities Available for Sale. Equity securities and government treasury bills are reported at fair value utilizing Level 1 inputs based upon quoted market prices. Other securities and certain preferred equity securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, Webster obtains fair value measurements from various sources and utilizes matrix pricing to calculate fair value. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Any investment security not valued based upon the methods previously discussed are considered Level 3. The Level 3 fair values are determined using unobservable inputs and included pooled trust preferred securities transferred to Level 3 in the third quarter of 2008. The market for pooled trust preferred securities has been relatively inactive for several quarters as secondary trading in these securities has dropped to a fraction of the levels experienced prior to the current financial market disruption. There has been no new issuance of pooled trust preferred securities since 2007 and few market participants willing or able to transact in these securities. Management utilizes an internally developed model to fair value the pooled trust preferred securities. The model utilizes certain assumptions which management evaluates for reasonableness. Management evaluates various factors for pooled trust preferred securities, including actual and estimated deferral and default rates that are implied from the underlying performance of the issuers in the structure. Contractual cash flows are reduced by both actual and expected deferrals and defaults and discounted at a rate that incorporates both liquidity and credit risk by credit rating to determine the fair market value of each security. Discount rates are implied from observable and unobservable inputs. The uncertainty in evaluating the credit risk in these securities required the Company to consider and weigh various inputs (see Note 4 for additional information).

Trading Securities. Securities classified as trading are reported at fair value utilizing Level 2 inputs in the same manner as described above for securities available for sale.

Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs obtained from third parties to value interest rate swaps and caps. Fair values are compared to other independent third party values for reasonableness.

Impaired Loans. Certain impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. When the fair value of the collateral is based on an observable market price or certain appraised values, Webster records the impaired loan using Level 2 inputs. For all other impairments, Webster records the impairment using Level 3 inputs. Loans totaling $587.2 million were deemed impaired at June 30, 2009. At June 30, 2009 $483.1 million were reported at amortized cost and $104.1 million was reported at fair value. At June 30, 2009 a valuation allowance of $23.0 million was maintained for loans reported at fair value.

Loans Held for Sale. Loans held for sale are required to be carried at the lower of cost or fair value. Under SFAS 157, market value is to represent fair value. As of June 30, 2009, Webster had $113.9 million of loans held for sale. Management obtains quotes or bids on all or part of these loans directly from the purchasing financial institutions which are considered to be Level 2 inputs. At June 30, 2009, $68.6 million of loans held for sale were recorded at cost and $45.3 million of loans held for sale were recorded at fair value.

Servicing Assets. Servicing assets are carried at cost and are subject to impairment testing. Fair value is estimated utilizing market based assumptions for loan prepayment speeds, servicing costs, discount rates and other economic factors which are considered to be Level 3 inputs. Where the carrying value exceeds fair value, a valuation allowance is established through a charge to non-interest

income and subsequently adjusted for changes in fair value. For those servicing assets that experienced a change in fair value, Webster reduced its valuation allowance and recorded a valuation allowance recovery of $17,350 and $85,792 as a component of mortgage banking activities in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2009.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2009, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


*(In thousands)*	Balance as of June 30, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Financial assets held at fair value:
Available for sale securities:
Government treasury bills	$	500	$	500	$	—	$	—
Corporate bonds and notes		114,753		—		31,713		83,040
Equity securities		14,659		14,659		—		—
Mortgage-backed securities-GSE		1,195,348		—		1,195,348		—
Mortgage-backed securities-other		80,612		—		80,612		—

Total securities		1,405,872		15,159		1,307,673		83,040
Derivatives instruments		58,983		—		58,983		—

Total financial assets held at fair value	$	1,464,855	$	15,159	$	1,366,656	$	83,040


Financial liabilities held at fair value:
Derivative instruments	$	29,436	$	—	$	29,436	$	—

The following table shows a reconciliation of the beginning and ending balances for Level 3 assets for the three and six months ended June 30, 2009:


	Three Months Ended June 30, 2009			Six Months Ended June 30, 2009
Level 3 - available for sale securities, beginning of period	$	69,355		$	62,697
Change in unrealized losses included in other comprehensive income		32,154			38,374
Realized loss on sale of available for sale securities		(11,912	)		(11,912	)
Net other-than-temporary impairment charges^(a)		(6,024	)		(6,024	)
Purchases, sales, issuances and settlements, net		(533	)		(95	)

Level 3 - available for sale securities, end of period	$	83,040		$	83,040

(a)

Net other-than-temporary impairment charges includes the net impact of the $23.6 million credit related OTTI charge taken in the second quarter, offset by the $17.6 million cumulative effect of the change in accounting principle for the adoption of FSP SFAS 115-2 and SFAS 124-2. See Note 4 – Investment Securities for additional information regarding these charges.

For the three and six months ended June 30, 2009 the change in the unrealized loss on investments held as of June 30, 2009 was $20.9 million and $40.6 million, respectively, after the impact of net credit related OTTI charges.

Certain assets and liabilities are measured at fair value on a non-recurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period as well as assets that are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

The following table summarizes financial assets and financial liabilities measured at fair value on a non-recurring basis as of June 30, 2009, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


*(In thousands)*	Balance as of June 30, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Assets:
Impaired loans	$	104,099	$	—	$	—	$	104,099
Loans held for sale		45,338		—		—		45,338
Servicing assets		91		—		—		91

Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment.

Foreclosed property and repossessed assets consists of loan collateral which has been repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including equipment and vehicles. Foreclosed property and repossessed assets are recorded as held for sale initially at the lower of the loan balance or fair value of the collateral less estimated selling costs. For the three and six months ended June 30, 2009, foreclosed properties and repossessed assets with a fair value of $11.0 million and $21.3 million were transferred to foreclosed property and repossessed assets from loans. Prior to the transfer, the assets were written down to fair value through a charge to the allowance for loan losses. For the three and six months ended June 30, 2009, valuation adjustments to reflect foreclosed properties and repossessed assets at fair value less cost to sell resulted in a charge to the allowance for loan losses of $2.6 million and $4.8 million, respectively. Subsequent to foreclosure, valuations are updated periodically, and the assets may be marked down further, reflecting a new cost basis. Subsequent valuation adjustments to foreclosed properties and repossessed assets totaled $2.8 million and $6.3 million, respectively, reflective of continued deterioration in market values. Fair value measurements may be based upon appraisals or third-party price opinions and, accordingly, those measurements are classified as Level 2. Other fair value measurements may be based on internally developed pricing methods, and those measurements are classified as Level 3.

SFAS 107 requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. A detailed description of the valuation methodologies used in estimating the fair value of financial instruments is set forth in the 2008 Form 10-K.


	June 30, 2009				December 31, 2008
*(In thousands)*	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash and due from depository institutions	$	254,638	$	254,638	$	259,208	$	259,208
Short-term investments		8,216		8,216		22,154		22,154
Investment securities		4,173,837		4,206,577		3,711,293		3,748,527
Loans held for sale		113,936		113,936		24,524		24,665
Loans, net		11,304,703		11,024,084		11,952,262		11,623,835
Mortgage servicing rights		5,753		10,708		4,358		8,304
Derivative instruments		58,983		58,983		86,612		86,612
Liabilities:
Deposits other than time deposits	$	8,584,378	$	8,109,714	$	7,013,075	$	6,601,991
Time deposits		4,590,204		4,636,822		4,871,815		4,941,462
Securities sold under agreements to repurchase and other short-term debt		1,015,099		1,031,755		1,570,971		1,561,748
FHLB advances and other long-term debt		1,253,643		1,127,177		2,023,793		1,752,679
Derivative instruments		29,436		29,436		53,246		53,246

NOTE 13: Shareholders’ Equity

Accumulated other comprehensive loss is comprised of the following components:


*(In thousands)*	June 30, 2009			December 31, 2008
Unrealized loss on available for sale securities, net of tax	$	(34,568	)	$	(71,530	)
Unrealized loss upon transfer of available for sale securities to held-to-maturity, net of tax and amortization		(903	)		(1,039	)
Net actuarial loss and prior service cost for pension and other postretirement benefit plans, net of tax		(27,707	)		(28,823	)
Unrealized loss on cash flow hedge		(5,659	)		(7,441	)
Deferred gain on hedge accounting transactions		1,965			2,923

Total	$	(66,872	)	$	(105,910	)

The following table summarizes the components of other comprehensive income (loss):


	Three months ended June 30,
	2009									2008
*(In thousands)*	Before tax			Tax (expense) benefit			Net of tax			Before tax			Tax (expense) benefit			Net of tax
Other comprehensive income (loss):
Net unrealized (loss) gain on securities available for sale	$	74,478		$	(26,067	)	$	48,411		$	(1,364	)	$	(602	)	$	(1,966	)
Amortization of deferred hedging gain		(160	)		56			(104	)		(164	)		57			(107	)
Realized portion of deferred hedging gain		(674	)		—			(674	)		—			—			—
Amortization of unrealized loss on securities transferred to held to maturity		116			(41	)		75			34			(12	)		22
Unrealized gain on cash flow hedge		2,247			(786	)		1,461			3,266			(1,143	)		2,123
Amortization of net actuarial loss and prior service cost		902			(316	)		586			18			(7	)		11

Total other comprehensive income (loss)	$	76,909		$	(27,154	)	$	49,755		$	1,790		$	(1,707	)	$	83


	Six months ended June 30,
	2009									2008
*(In thousands)*	Before tax			Tax (expense) benefit			Net of tax			Before tax			Tax (expense) benefit			Net of tax
Other comprehensive (loss) income:
Net unrealized (loss) gain on securities available for sale	$	74,371		$	(25,978	)	$	48,393		$	(47,745	)	$	15,421		$	(32,324	)
Amortization of deferred hedging gain		(437	)		153			(284	)		(332	)		116			(216	)
Realized portion of deferred hedging gain		(674	)		—			(674	)		—			—			—
Amortization of unrealized loss on securities transferred to held to maturity		209			(73	)		136			231			(81	)		150
Unrealized gain on cash flow hedge		2,741			(959	)		1,782			3,266			(1,143	)		2,123
Amortization of net actuarial loss and prior service cost		1,717			(601	)		1,116			36			(13	)		23

Total other comprehensive income (loss)	$	77,927		$	(27,458	)	$	50,469		$	(44,544	)	$	14,300		$	(30,244	)

Exchange Offer

On May 28, 2009, the Company announced the commencement of an exchange offer, which expired on June 24, 2009, with holders of the Series A Preferred Stock and the Trust Preferred Securities. See Note 11 - Long-Term Debt for additional information related to the effect of the exchange offer on the Trust Preferred Securities.

The Company offered 35.8046 shares of its common stock and $350 in cash as consideration for each share of the Series A Preferred Stock tendered. A total of 168,500 shares of Series A Preferred Stock were accepted, resulting in the issuance of 6.03 million common shares at a fair value of $43.7 million and delivery of $59.0 million in cash. The exchange was accounted for as a redemption resulting in the de-recognition of the $168.5 million carrying amount of Series A Preferred Stock tendered,

elimination of $5.5 million of original issuance costs, recognition of the $43.6 million excess of the fair value of the common stock issued over par, net of issuance costs, as additional paid in capital (“APIC”), and the recognition of the $58.8 million excess of the carrying amount of the preferred stock retired over the fair value of the common shares issued and cash delivered as an increase to retained earnings.

NOTE 14: Regulatory Matters

Capital guidelines issued by the Federal Reserve Board and the Office of the Comptroller of Currency of the United States (“OCC”) require Webster and its banking subsidiary to maintain certain minimum ratios, as set forth below. At June 30, 2009, Webster and Webster Bank, were deemed to be “well capitalized” under the regulations of the Federal Reserve Board and the OCC, respectively, and in compliance with the applicable capital requirements.

The following table provides information on the capital ratios of the Company and Webster Bank:


	Actual				Capital Requirements				Well Capitalized
*(Dollars in thousands)*	Amount		Ratio		Amount		Ratio		Amount		Ratio
At June 30, 2009
Webster Financial Corporation
Total risk-based capital	$	1,776,752	13.9	%	$	1,020,044	8.0	%	$	1,275,055	10.0	%
Tier 1 capital		1,508,948	11.8			510,020	4.0			765,030	6.0
Tier 1 leverage capital ratio		1,508,948	8.9			677,105	4.0			846,382	5.0
Webster Bank, N.A.
Total risk-based capital	$	1,554,455	12.3	%	$	1,012,792	8.0	%	$	1,265,991	10.0	%
Tier 1 capital		1,287,605	10.2			506,396	4.0			759,594	6.0
Tier 1 leverage capital ratio		1,287,605	7.6			674,318	4.0			842,898	5.0

At December 31, 2008
Webster Financial Corporation
Total risk-based capital	$	1,982,426	15.0	%	$	1,054,173	8.0	%	$	1,317,716	10.0	%
Tier 1 capital		1,656,710	12.6			527,086	4.0			790,629	6.0
Tier 1 leverage capital ratio		1,656,710	9.7			681,592	4.0			851,990	5.0
Webster Bank, N.A.
Total risk-based capital	$	1,572,893	12.1	%	$	1,044,134	8.0	%	$	1,305,167	10.0	%
Tier 1 capital		1,248,727	9.6			522,067	4.0			783,100	6.0
Tier 1 leverage capital ratio		1,248,727	7.4			678,732	4.0			848,415	5.0

NOTE 15: (Loss) Earnings Per Common Share

SFAS 128 provides the two-class method earnings allocation formula that determines earnings per share for each class of stock according to dividends declared and participation rights in undistributed earnings. In June 2008, the FASB issued FSP EITF 03-6-1, which clarifies that share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered participating securities. As participating securities, these instruments should be included in the earnings allocation in computing basic earnings per share under the two-class method described in SFAS 128. The FSP requires all prior period earnings per share data presented to be adjusted retrospectively to conform with the provisions of this pronouncement. FSP EITF 03-6-1 was effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those years. Accordingly, the Company adopted FSP EITF 03-6-1 effective January 1, 2009.

The following table presents undistributed and distributed earnings (losses) allocated to common shareholders.


	Three Months Ended June 30,					Six Months Ended June 30,
*(In thousands)*	2009		2008			2009			2008
Net income (loss) applicable to common shareholders	$	16,799	$	(28,940	)	$	(4,754	)	$	(4,575	)
Less: income (loss) from discontinued operations; net of tax		313		(439	)		313			(2,563	)

Income (loss) from continuing operations applicable to common shareholders		16,486		(28,501	)		(5,067	)		(2,012	)
Less:
Dividends paid - common shareholders		522		15,724			1,043			31,448
Dividends paid - participating shares		5		23			11			46

Undistributed income (loss) from continuing operations	$	15,959	$	(44,248	)	$	(6,121	)	$	(33,506	)

Income (loss) from continuing operations available to common shareholders
Distributed earnings to common shareholders	$	522	$	15,724		$	1,043		$	31,448
Allocation of undistributed earnings (losses) to common shareholders		15,795		(44,248	)		(6,121	)		(33,506	)

Income (loss) from continuing operations available to common shareholders	$	16,317	$	(28,524	)	$	(5,078	)	$	(2,058	)

Income (loss) from discontinued operations available to common shareholders
Distributed earnings to common shareholders	$	—	$	—		$	—		$	—
Allocation of undistributed income (loss) from discontinued operations available to common shareholders		309		(439	)		309			(2,563	)

Income (loss) from discontinued operations available to common shareholders	$	309	$	(439	)	$	309		$	(2,563	)

Undistributed earnings (loss) available to common shareholders is calculated by dividing weighted average shares outstanding by the total of weighted shares outstanding plus weighted average of unvested participating securities multiplied by undistributed earnings. The weighted average number of unvested participating securities for the three and six months ended June 30, 2009 and 2008 is 549,846, 562,394, 408,218 and 408,940, respectively. The weighted average number of participating securities at June 30, 2009 was deemed to be anti-dilutive for the six month period ended June 30, 2009 and therefore has been excluded from the calculation of basic and dilutive loss per share for the six months ended June 30, 2009.

The following table shows weighted average shares outstanding and diluted shares outstanding for the three month period ended:


*(In thousands)*	June 30, 2009	June 30, 2008
Weighted average basic shares outstanding:	53,398	52,017
Add: dilutive effects of stock options	—	—

Weighted average shares outstanding, including the effects of dilutive common shares	53,398	52,017

Options to purchase 3.2 million and 2.0 million shares that were outstanding at June 30, 2009 and 2008, respectively, were excluded from the calculation of diluted earnings per share because the options’ exercise price was greater than the average market price of the shares.

The following table provides the calculation of basic and diluted earnings per common share from continuing and discontinued operations.


	Three Months Ended June 30,					Six Months Ended June 30,
*(In Thousands except share information)*	2009		2008			2009			2008

Basic:
Income (loss) from continuing operations available to common shareholders	$	16,317	$	(28,524	)	$	(5,078	)	$	(2,058	)
Shares outstanding (average)		53,398		52,017			52,478			52,009

Basic earnings (loss) per common share from continuing operations	$	0.30	$	(0.55	)	$	(0.10	)	$	(0.04	)


Income (loss) from discontinued operations available to common shareholders	$	309	$	(439	)	$	309		$	(2,563	)
Shares outstanding (average)		53,398		52,017			52,478			52,009

Basic earnings (loss) per common share from discontinued operations	$	0.01	$	(0.01	)	$	0.01		$	(0.05	)

Basic earnings (loss) earnings per common share	$	0.31	$	(0.56	)	$	(0.09	)	$	(0.09	)


Diluted:
Income (loss) from continuing operations available to common shareholders	$	16,317	$	(28,524	)	$	(5,078	)	$	(2,058	)
Diluted shares (average)		53,398		52,017			52,478			52,009

Diluted earnings (loss) per common share from continuing operations	$	0.30	$	(0.55	)	$	(0.10	)	$	(0.04	)


Income (loss) from discontinued operations available to common shareholders	$	309	$	(439	)	$	309		$	(2,563	)
Diluted shares (average)		53,398		52,017			52,478			52,017

Diluted earnings (loss) per common share from discontinued operations	$	0.01	$	(0.01	)	$	0.01		$	(0.05	)

Diluted earnings (loss) per common share	$	0.31	$	(0.56	)	$	(0.09	)	$	(0.09	)

Upon adoption, there was no change for the continuing operations basic and diluted income per common share for the three and six month periods ended June 30, 2008. Basic income and dilutive income per share was unchanged for discontinued operations.

A total of 3,570,347 and 2,749,893 shares at June 30, 2009 and 2008, respectively, represented by non-participating stock options granted, and 2,075,779 and 3,282,276 shares represented by convertible preferred stock and warrants, respectively, at June 30, 2009 and 8,281,035 in convertible preferred at June 30, 2008 are not included in the above calculations as they are anti-dilutive. There were no warrants at June 30, 2008 for purposes of calculating earnings per share for the three and six months ended June 30, 2008.

NOTE 16: Business Segments

For purposes of reporting segment results, Webster has four business segments: Commercial Banking, Retail Banking, Consumer Finance and Other. Commercial Banking includes middle market, asset-based lending, commercial real estate equipment finance, wealth management and insurance premium finance lines of business. Retail Banking includes retail banking, business and professional banking and investment services. Consumer Finance includes residential mortgage, consumer lending and mortgage banking activities. Other includes HSA Bank and Government Finance. As of January 2009, Webster’s equipment finance, wealth management and insurance premium finance lines of business, previously reported within the Company’s Other segment were realigned within the Company’s organizational hierarchy to be included within the Commercial Banking segment, while certain support functions were realigned within the corporate functions.

The Corporate and reconciling amounts include the Company’s Treasury unit, the results of discontinued operations and the amounts required to reconcile profitability metrics to GAAP reported amounts. For further discussion of Webster’s business segments, see pages 46-49 in this report and Note 22, “Business Segments”, on pages 125-127 of Webster’s 2008 Annual Report on Form 10-K.

The following tables present the operating results and total assets for Webster’s reportable segments for the three and six months ended June 30, 2009 and 2008. The results for the three and six months ended June 30, 2009 incorporate the allocation of the increase in the provision for credit losses and income tax benefit to each of Webster’s business segments, resulting in a reduction in the income tax expense (benefit).

Three months ended June 30, 2009


*(In thousands)*	Commercial Banking		Retail Banking			Consumer Finance		Other		Total Reportable Segments		Corporate & Reconciling Amounts			Consolidated Total
Net interest income	$	36,904	$	42,258		$	30,940	$	4,521	$	114,623	$	4,665		$	119,288
Provision for credit losses		10,764		2,336			5,747		—		18,847		66,153			85,000

Net interest income after provision		26,140		39,922			25,193		4,521		95,776		(61,488	)		34,288
Non-interest income		8,921		30,033			5,563		2,798		47,315		(11,937	)		35,378
Non-interest expense		25,085		71,568			15,600		6,385		118,638		11,439			130,077

Income (loss) from continuing operations before income taxes		9,976		(1,613	)		15,156		934		24,453		(84,864	)		(60,411	)
Income tax expense (benefit)		7,114		(1,110	)		10,939		245		17,188		(45,724	)		(28,536	)

Income (loss) from continuing operations		2,862		(503	)		4,217		689		7,265		(39,140	)		(31,875	)
Gain from discontinued operations		—		—			—		—		—		313			313

Consolidated net income (loss)		2,862		(503	)		4,217		689		7,265		(38,827	)		(31,562	)
Less noncontrolling interest		—		—			—		—		—		—			—

Net income (loss) attributable to Webster Financial Corporation	$	2,862	$	(503	)	$	4,217	$	689	$	7,265	$	(38,827	)	$	(31,562	)


Total assets at period end	$	4,758,010	$	1,587,964		$	6,301,270	$	23,637	$	12,670,881	$	4,781,695		$	17,452,576

Three months ended June 30, 2008, as reclassified ^(a)


*(In thousands)*	Commercial Banking ^(a)			Retail Banking			Consumer Finance			Other ^(a)		Total Reportable Segments			Corporate & Reconciling Amounts ^(a)			Consolidated Total
Net interest income	$	34,704		$	53,947		$	29,807		$	3,953	$	122,411		$	3,275		$	125,686
Provision for credit losses		5,311			1,164			3,443			—		9,918			15,082			25,000

Net interest income after provision		29,393			52,783			26,364			3,953		112,493			(11,807	)		100,686
Non-interest income		9,603			31,615			3,429			2,500		47,147			(52,896	)		(5,749	)
Non-interest expense		31,110			71,045			17,844			6,192		126,191			11,316			137,507

Income (loss) from continuing operations before income taxes		7,886			13,353			11,949			261		33,449			(76,019	)		(42,570	)
Income tax (benefit) expense		(6,390	)		(5,510	)		(5,330	)		164		(17,066	)		2,781			(14,285	)

Income (loss) from continuing operations		14,276			18,863			17,279			97		50,515			(78,800	)		(28,285	)
Loss from discontinued operations		—			—			—			—		—			(439	)		(439	)

Consolidated net income (loss)		14,276			18,863			17,279			97		50,515			(79,239	)		(28,724	)
Less noncontrolling interest		—			—			1			—		1			—			1

Net income (loss) attributable to Webster Financial Corporation	$	14,276		$	18,863		$	17,278		$	97	$	50,514		$	(79,239	)	$	(28,725	)


Total assets at period end	$	5,159,166		$	1,590,234		$	7,030,345		$	23,635	$	13,803,380		$	3,675,256		$	17,478,636

(a)

As of January 1, 2009 management realigned its business segments balances for Webster’s equipment finance, wealth management and insurance premium finance operating units, previously reported as a component of the Other reporting segment. Each has been reclassified to be included within the Commercial reporting segment while certain support functions were realigned within the corporate function. The 2008 balances were reclassified for comparability to the 2009 presentation.

Six months ended June 30, 2009


*(In thousands)*	Commercial Banking		Retail Banking		Consumer Finance		Other		Total Reportable Segments		Corporate & Reconciling Amounts			Consolidated Total
Net interest income	$	72,696	$	86,576	$	63,058	$	7,503	$	229,833	$	7,652		$	237,485
Provision for credit losses		20,255		4,293		10,636		—		35,184		115,816			151,000

Net interest income after provision		52,441		82,283		52,422		7,503		194,649		(108,164	)		86,485
Non-interest income		17,436		57,704		7,555		5,936		88,631		862			89,493

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company