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Webster (WBS) Ratings Affirmed by Moody's, Outlook Stable

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Ratings of Webster Financial Corporation (WBS - Free Report) and its subsidiaries have been affirmed by Moody's Investors Service. Webster’s long-term senior unsecured is rated as Baa1 and its lead bank, Webster Bank N.A. long-term deposits have been affirmed as A1, including its a3 standalone Baseline Credit Assessment (BCA). The outlook has been left unchanged at stable.

Reasons Behind Ratings Affirmation

Per Moody’s, the company’s sustainable business model will continue to support its robust liquidity position, strong deposit funding and solid asset quality. Also, the ratings affirmation is based on Moody's view that the bank will maintain its credit profile on the back of continued improvement in financial performance over the near term.

Regarding fee income sources, Webster's HSA business provides solid support. In the first nine months, it accounted for 45% of pre-tax net revenues.  Also, it provides a stable deposit funding, and contributed nearly 26% of deposits as of Sep 30, 2020.

Moody’s finds Webster’s exposure to most affected sectors by the coronavirus outbreak to be modest. It expects the company to face higher nonperforming loans and net charge-offs over the next 12 months in its loan portfolios. Though Webster has built its allowance for credit losses through sizeable loan loss provisions in 2020, Moody's believes the company’s improved allowance coverage and recurring earnings will be enough to absorb losses.

Further, Webster’s loan portfolio growth has been above its peer averages in recent years. Moody's assessment of Webster's asset risk, incorporates the risks associated with recent periods of high loan growth and the risks to creditors associated with its modest commercial real estate loan concentration.

Moody’s calculation of adjusted tangible common equity as a percentage of risk-weighted assets for Webster is in line with the peer median. Moody's expects that Webster's adequate capitalization will be maintained over the next 12-18 months.

Factors That Might Lead to Ratings Upgrade or Downgrade

Per Moody’s Webster's BCA and ratings could be upgraded if the company is able to deliver a sustained improvement in capitalization and an above-peer-average asset quality performance. On the flip side, the same could be downgraded if the ratings agency finds aggressive capital actions and a reduction in liquid banking assets.

Shares of Webster have gained 86.9% over the past six months compared with the industry’s rally of 43.7%.

The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Rating Actions by Moody’s on Other Banks

Recently, Moody’s affirmed the ratings for many finance companies. Some of them are SVB Financial Group’s (SIVB - Free Report) , Signature Bank (SBNY - Free Report) and Huntington Bancshares (HBAN - Free Report) . While the outlook for Signature Bank was lowered to stable, the same for SVB Financial and Huntington Bancshares was affirmed at stable.

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