New York, January 11, 2021 -- Moody's Investors Service (Moody's) has affirmed the long- and
short-term ratings and assessments of Webster Financial Corporation
(Webster, long-term senior unsecured Baa1) and of its lead
bank, Webster Bank N.A. (long-term deposits
A1), including its a3 standalone Baseline Credit Assessment (BCA).
The rating outlook remains stable.
Affirmations:
..Issuer: Webster Bank N.A.
.... Adjusted Baseline Credit Assessment,
Affirmed a3
.... Baseline Credit Assessment, Affirmed
a3
.... Long term Counterparty Risk Assessment,
Affirmed A2(cr)
.... Short term Counterparty Risk Assessment,
Affirmed P-1(cr)
.... Long term Counterparty Risk Rating,
Affirmed A3
.... Short term Counterparty Risk Rating,
Affirmed P-2
.... Long term Deposit Rating, Affirmed
A1, stable
.... Short term Deposit Rating, Affirmed
P-1
.... Issuer Rating, Affirmed Baa1,
stable
..Issuer: Webster Financial Corporation
.... Issuer Rating, Affirmed Baa1,
stable
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa1, stable
....Senior Unsecured Shelf, Affirmed
(P)Baa1
....Subordinate Shelf, Affirmed (P)Baa1
....Pref. Stock Shelf, Affirmed
(P)Baa2
....Pref. Stock Non-cumulative
Shelf, Affirmed (P)Baa3
....Pref. Stock Non-cumulative,
Affirmed Baa3 (hyb)
Outlook Actions:
..Issuer: Webster Bank N.A.
....Outlook, Remains Stable
..Issuer: Webster Financial Corporation
....Outlook, Remains Stable
RATINGS RATIONALE
The ratings affirmation reflects Moody's expectations that Webster's
sustainable business model will continue to support its good liquidity
position, strong deposit funding, and solid asset quality.
While Moody's views US banks as facing a weak though improving operating
environment, rising asset risk and ongoing profitability pressures,
the stable outlook on Webster's ratings reflects Moody's view
that the bank will maintain its credit profile evidenced by continued
good financial performance over the next 12-18 months.
Webster's good liquidity position is evidenced by its strong funding
profile and amount of liquid assets on its balance sheet. Its funding
profile is supported by its core deposit base, which more than fully
funds its loan portfolio resulting in a minimal reliance on confidence-sensitive
market funding and in limited refinancing risk. Its good-quality
deposit base is a function of its good market share in its home state
of Connecticut and is supplemented by its health savings account (HSA)
business. Webster's HSA business, a national operation,
provides the bank a good source of fee income and stable deposit funding.
For the first nine months of 2020, the HSA business accounted for
45% of pre-tax net revenue, up from 28% in
2019. As of 30 September 2020, the HSA business contributed
26% of deposits. While at this size Webster's HSA
business presents some deposit concentration, Moody's believes
that the associated risks are mitigated by Webster's comparatively
large holding of liquid assets, which accounted for over 25%
of tangible banking assets as of 30 September 2020.
Moody's expects Webster, like most US banks, will face
higher nonperforming loans and net charge-offs over the next 12
months in its loan portfolios most vulnerable to the fallout from the
coronavirus pandemic. Webster's exposure to the most impacted
sectors is relatively modest, 11% of total loans as of 30
September 2020 based on the bank's assessment. While loan
payment deferrals and forbearance programs often mask weaker asset quality,
only 2% of Webster's loan portfolio remained on deferral
at the same reporting date. In response, Webster has built
its allowance for credit losses through sizeable loan loss provisions
in 2020. Its allowance for credit losses was 1.69%
of loans at 30 September 2020, up from 1.04% at year-end
2019 prior to the implementation of the current estimated credit losses
(CECL) accounting standard and the onset of the coronavirus pandemic.
Moody's believes Webster's improved allowance coverage and
recurring earnings will be enough to absorb losses.
While Webster's total loan growth for the first nine months of 2020 has
been modest, 3% annualized excluding Paycheck Protection
Program (PPP) loans, the bank grew its commercial and industrial
(C&I) and commercial real estate (CRE) loan portfolios at above-peer-average
rates in recent years. Its CRE exposure, which includes its
CRE loan portfolio as well as its non-agency commercial mortgage
backed securities, constitutes a moderate concentration at 2.3
times its Moody's-adjusted tangible common equity (TCE) base,
as of 30 September 2020. Moody's said Webster's ratings
and its assessment of Webster's asset risk incorporate the risks
associated with recent periods of high loan growth and the risks to creditors
associated with its modest CRE concentration.
Webster's Moody's adjusted TCE as a percentage of risk-weighted
assets (Moody's TCE ratio) was 10.81% at 30 September
2020, in line with the similarly rated peer median. Webster's
Moody's TCE ratio declined in the first quarter of 2020 driven by
CECL implementation and share repurchases in excess of earnings owing
to a sizeable loan loss provision. It has since improved in the
following two quarters. Moody's expects Webster's adequate
capitalization will be maintained over the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Webster's BCA and ratings could be upgraded if the bank demonstrates
a sustained improvement in capitalization and an above-peer-average
asset quality performance.
Webster's BCA and ratings could be downgraded if Moody's observed
aggressive capital actions and a reduction in liquid banking assets.
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
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affected the rating. For further information please see the ratings
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For any affected securities or rated entities receiving direct credit
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and whose ratings may change as a result of this credit rating action,
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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for Designating and Assigning Unsolicited Credit Ratings available on
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Megan Fox
AVP - Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
