DBRS Confirms Webster Financial Corp. at BBB (high); Webster Bank at A (low) with Stable Trend

DBRS has today confirmed the ratings and Stable trend of Webster Financial Corporation (Webster or the Company) and its operating bank subsidiary, Webster Bank, N.A. The rating action followed a review of the Company’s operating results and financial fundamentals.

Webster’s ratings reflect its demographically appealing banking franchise, significant deposit market share in Connecticut and sound asset quality. Ratings also consider the Company’s pressured performance, elevated efficiency and acceptable capital position, all of which have historically lagged its peers.

Webster benefits from a banking franchise that extends from southeastern Massachusetts down into Westchester County, New York with the bulk of its operations underpinned by a significant deposit base in the state of Connecticut, where it ranks second and holds 14% of deposits.

Webster’s earnings performance continues to be pressured, and performance measures have historically been at the lower end of the range for its similarly rated peers. Profitability metrics evidence the Company’s mostly collateralized loan portfolio and material costs associated with a sizeable de novo branch expansion program. Recently, Webster’s bottom line was pressured by one-time charges related to its significant balance sheet restructuring and de-levering.

The Company has successfully augmented its capital position over the past few years by tempering acquisitions and contributing to retained earnings. Recently, Webster expanded its capital through the issuance of enhanced trust preferred securities and the securitization of a material level of residential mortgage loans.

Webster’s asset quality is sound and its non-performing assets and net charge-off metrics fall comfortably within the range of its similarly rated peers. The Company’s loan portfolio is well diversified, highly granular and lacks major risk concentrations. Nonetheless, DBRS notes that moving in tandem with the credit cycle, the Company’s loan portfolio did reflect an up-tick in non-performing assets, which are adequately reserved.

The holding company’s stand-alone fundamentals are solid. Double leverage is somewhat elevated at 106% (at June 30, 2007), but not excessive. Moreover, the parent maintains ample liquidity to cover its debt-service obligations and operating expenses for at least one year.

Going forward, DBRS expects that Webster will continue to produce recurrent earnings and adequate profitability from its diverse business mix, and will preserve its underwriting discipline coupled with systemic loan review and prudent interest-rate risk management. These expectations support the Stable ratings trend. DBRS notes that upward rating pressure would result from significantly improved performance metrics, a lower-cost funding profile and improved operating efficiency. Negative ratings pressure would result from an inability to improve financial performance and a marked deterioration in asset quality.

Webster Financial Corporation, a diversified financial-services provider headquartered in Waterbury, Connecticut reported $16.9 billion in assets, $12.8 billion in deposits and $1.8 billion in shareholders’ equity at June 30, 2007.

Notes:
All figures are in U.S. dollars unless otherwise noted.