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Ratings of Webster Financial Corporation WBS and its bank subsidiary, Webster Bank N.A., was recently confirmed by Moody’s Investors Service. The outlook has remained stable.
Wester Bank’s long and short-term deposits have been rated as A1/Prime-1 while standalone baseline credit assessment (BCA) is rated a3 and its counterparty risk assessments are A2(cr)/Prime-1(cr).
Webster Financial has a long-term issuer rating and a senior unsecured rating of Baa1. Further, the company’s shelf registration was rated (P)Baa1 for senior unsecured, (P)Baa1 for subordinate, (P)Baa2 for cumulative preferred stock and (P)Baa3 for non-cumulative preferred stock.
Per Moody’s, the ratings affirmation reflects the company’s sustainable business model and ability to maintain credit quality with support from robust liquidity position and improving credit metrics.
Webster has a strong deposit base accounting for about 116% of gross loans. Such impressive deposits balance enables the bank to depend less on funding from external sources. Further, the company holds liquid assets of about 25% of tangible banking assets.
Also, Moody’s finds Webster’s asset quality to be strong as indicated by ration of non-performing loans to total loans of 1.5% (as of Mar 31, 2018). Also, slowdown in loan growth is considered a positive.
Further, the rating agency noted that the rising interest rates continue to benefit its bottom line as the company’s revenues are dependent on spread income, and its balance sheet remains asset-sensitive.
The adjusted tangible common equity as a percentage of risk-weighted assets has been calculated as 10.9% for Webster’s as of Dec 31, 2017. Moody’s finds the ratio to match the similarly-rated peer median. However, its current capital levels limit upward rating pressure.
Ratings of Webster can be upgraded if it delivers a sustained improvement in capital and an above-average asset quality performance. On the flip side, a downward rating in its standalone BCA is plausible on account of aggressive capital actions and a reduction in liquid banking assets.
Shares of Webster Financial have gained 32.9% in the past year, outperforming the industry’s rally of 8.2%.
Currently, Webster Financial carries a Zacks Rank #2 (Buy).
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