Fitch Affirms Webster Financial's Ratings at 'BBB/F2'; Outlook Stable

Fitch Ratings has affirmed Webster Financial Corp.'s (WBS) ratings at 'BBB/F2'. The Rating Outlook remains Stable. The affirmation and stable outlook reflects its solid franchise and operating performance in line with its rating category. The Stable Outlook reflects Fitch's view that WBS' financial profile will remain relatively unchanged over the intermediate term.

The rating action follows a periodic review of the mid-tier regional banking group, which includes BOK Financial Corp. (BOKF), Cathay General Bancorp (CATY), East West Bancorp, Inc. (EWBC), First Horizon National Corp. (FHN), First National of Nebraska, Inc. (FNNI), First Republic Bank (FRC), Fulton Financial Corp (FULT), People's United Financial Inc. (PBCT), Synovus Financial Corp. (SNV), TCF Financial Corp. (TCB), Webster Financial Corp. (WBS), Wintrust Financial Corp (WTFC), and UMB Financial Corporation (UMB).

Company-specific rating rationales for the other banks are published separately.

KEY RATING DRIVERS - IDRS, VRs AND SENIOR DEBT

WBS' ratings reflect its solid franchise, which primarily exists in Connecticut. Moreover, WBS has further strengthened its franchise through the 3Q14 announced acquisition of JP Morgan's health savings account (HSA) business in 2014. The HSA business provides a solid source of long-duration deposit funding for the WBS, which will be a benefit to the bank over the long term.

WBS' earnings are solid and finished 2014 above the mid-tier median level. Solid earnings are driven by relatively stronger operating leverage than its peers. In addition, WBS's earnings profile is also aided by a relatively higher yielding securities portfolio due to a sizeable CMBS portfolio, which has had strong performance. The portfolio yield is over 84 basis points (bps) higher than the mid-tier group median. Over 25% of WBS' securities portfolio is invested in higher yielding, non-government guaranteed securities. Fitch expects WBS's earnings to remain above the peer median as it net interest margin has been relatively more stable than its peers.

WBS' nonperforming assets (NPAs) rank in the top quartile of the mid-tier group at over 2.8% but are largely driven by Webster's conservative approach to trouble debt restructure (TDR) identification. Over 50% of the bank's nonperforming assets are TDRs. As a result, Fitch expects WBS' NPA levels to continue to rank in the top quartile of the mid-tier bank group since TDRs retain their classification for the life of the loan.

RATING SENSITIVITIES - IDRS, VRs AND SENIOR DEBT

Although not anticipated, WBS' ratings could move lower if the company experiences significant asset quality deterioration in its loan or investment portfolios, which include credit sensitive securities such as CMBS and CLOs. Conversely, if WBS managed its capital levels above 8% with moderate-to-low growth and stable asset quality, positive ratings moment could build.

RATING SENSITIVITIES - HOLDING COMPANY

Should WBS' holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies. This is viewed as unlikely though for WBS given the strength of the holding company liquidity profile.

KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR

WBS has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, WBS is not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not incorporate any support.

RATING SENSITVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

WBS' Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need.

KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt and other hybrid capital issued by WBS and by various issuing vehicles are all notched down from WBS or its bank subsidiaries' VRs in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles.

RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The ratings of subordinated debt and other hybrid capital issued by WBS and its subsidiaries are primarily sensitive to any change in WBS' VR.

To the extent that one of WBS' subsidiary or affiliated companies is not considered to be a core business, Fitch could also notch the subsidiary's rating from WBS' IDR.

KEY RATING DRIVERS - LONG- AND SHORT-TERM DEPOSIT RATINGS

WBS' uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

KEY RATING SENSITIVITIES - LONG- AND SHORT-TERM DEPOSIT RATINGS

The ratings of long- and short-term deposits issued by WBS and its subsidiaries are primarily sensitive to any change in WBS' long- and short-term IDRs.

Fitch has affirmed the following ratings with a Stable Outlook:

Webster Financial Corporation

--Long-term IDR at 'BBB'; Outlook Stable;

--Senior unsecured at 'BBB';

--Viability Rating at 'bbb';

--Preferred Stock at 'B+';

--Short-term IDR at 'F2';

--Support at '5';

--Support Floor at 'NF'.

Webster Bank, NA

--Long-term IDR at 'BBB'; Outlook Stable;

--Long-term deposits at 'BBB+';

--Viability Rating at 'bbb';

--Short-term IDR at 'F2';

--Short-term Deposits at 'F2';

--Support at '5';

--Support Floor at 'NF'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'U.S. Banking Quarterly comment: 4Q14 (Jan. 28, 2015)

--'U.S. Banks: The Risks with Energy Slide (Jan. 16, 2015)

--'U.S. Basel III and Dodd Frank Act Regulatory Guide (Nov. 21, 2014)

--'2015 Outlook: U.S. Banks (Growth in a Challenging Rate Environment)' (Nov. 12, 2014);

--'U.S. Banks: Implications of an Interest Rate Shock Scenario' (Oct. 30, 2014)

--U.S. Banks: Liquidity and Deposit Funding (Aug. 08, 2013);

--U.S. Banks: Interest Rate Risks (What Happens When Rates Rise) (June 18, 2013);

--U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? (July 11, 2013);

--'Index Trend Analysis - 4Q14 (Fitch Fundamentals Index Remains Neutral)' (January 2015);

--'Risk Radar Global 3Q14' (Sept. 15, 2014);

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);

--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);

--'Assessing and Rating Bank Subordinated and Hybrid Securities Criteria' (Jan. 31, 2014);

--'U.S. Bank HoldCos & OpCos: Evolving Risk Profiles' (March 27, 2014);

--'Rating Considerations for U.S. Bank Holdco & Opcos' (Update on Position Outlined in 1Q14) (Dec. 1, 2014)

Applicable Criteria and Related Research:

Rating Considerations for U.S. Bank Holdco & Opcos (Update on Position Outlined in 1Q14)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=821068

U.S. Banking Quarterly Comment: 4Q14 (All Eyes on Oil Prices and Interest Rates)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=849388

U.S. Basel III and Dodd Frank Act Regulatory Guide (Applicability of New Bank Regulations in the U.S.)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=798848

2015 Outlook: U.S. Banks (Growth in a Challenging Rate Environment)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=809228

U.S. Banks: Implications of an Interest Rate Shock Scenario

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=800748

U.S. Banks: Liquidity and Deposit Funding

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714196

U.S. Banks: Interest Rate Risks (What Happens When Rates Rise)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710875

U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In?

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=712539

Risk Radar Global 3Q14

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=773568

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Assessing and Rating Bank Subordinated and Hybrid Securities Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137

U.S. Bank HoldCos & OpCos: Evolving Risk Profiles

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=742096

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978963

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