Fitch Affirms Webster's Ratings - Analyst Blog

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Recently, Fitch Ratings concluded the peer review of 16 mid-tier regional banks including Webster Financial Corp . ( WBS ). The long-term and short-term Issuer Default Ratings (IDRs) of Webster and its subsidiaries were affirmed at 'BBB/F2' and the outlook was maintained at 'Stable.'

Banks with total assets ranging from $10 billion to $36 billion come under mid-tier regional category. The other features include homogenous business plans, dependency on spread income from loans and investments as well as share repurchases. Further, mid-tier banks lack geographical diversification as well diversified revenue streams. IDRs for these banks are dispersed with a low of 'BB-' and a high of 'A+.'

Rating Rationale

Fitch affirmed the ratings of Webster owing to continuously improving credit quality and profitability metrics.

As of Dec 31, 2012, Webster's allowance for loan losses dipped 24.1% year over year to $177.1 million. Further, net charge-offs to average loans (annualized) declined 61 basis points (bps) year over year to 1.47%. In addition, ratio of nonperforming loans to total loans fell 6 bps to 1.62% over the same time frame.

Fitch maintained its outlook on Webster at Stable. Continuously improving asset quality and manageable level of credit losses were the reasons behind the affirmation. Also, expectation of reduction of not more than 25 bps in the tangible common equity ratio from the third-quarter levels in the near term was another reason to reiterate the 'Stable' outlook on Webster.

Rating Action on Other Banks

Besides Webster, Fitch has affirmed the IDRs of 12 banks including Associated Banc-Corp ( ASBC ). Sufficient capital levels, robust earnings and funding profile of these companies, along with strong asset quality, prompted the rating agency to affirm the ratings.

The IDRs of Cathay General Bancorp ( CATY ) and First National of Nebraska were upgraded due to strong operating performance and constantly improving credit quality as well as sturdy capital levels. However, IDRs of Fulton Financial Corporation ( FULT ) and TCF Financial Corporation were downgraded since these have a weak asset quality, comparatively higher funding costs and risks related to balance sheet.

Conclusion

Webster's robust asset quality and profitability profile might translate into further positive ratings. On the contrary, if revenue, profitability and capital levels deteriorate, the company might face rating downgrades.

Currently, Webster carries a Zacks Rank #2 (Buy).



ASSOC BANC CORP (ASBC): Free Stock Analysis Report

CATHAY GENL BCP (CATY): Free Stock Analysis Report

FULTON FINL (FULT): Free Stock Analysis Report

WEBSTER FINL CP (WBS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ASBC , CATY , FULT , WBS

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