Fitch Affirms Webster Financial Corporation's Ratings; Outlook Stable

Fitch Ratings has affirmed the long- and short-term ratings of Webster Financial Corporation (WBS, or Webster) and its subsidiaries. The Rating Outlook is Stable. A complete list of ratings follows this release.

The affirmation is supported by WBS' improving profitability trends, manageable credit losses and adequate regulatory capital ratios. Conversely, ratings are constrained by elevated levels of non-performing assets (NPAs) and troubled debt restructurings (TDRs), as well as Webster's exposure to home equity loans. The Stable Outlook reflects Fitch's view that WBS' asset quality measures will continue to improve over the coming quarters and credit losses will remain moderate. Given WBS's risk profile and capitalization, Fitch believes the ratings are well situated at the current level.

WBS has historically been a solid performer, with pre-crisis returns on assets (ROAs) ranging from 0.75% to 1.0%. The company reported losses in 2008 and 2009 as a result of increased credit costs and noncash goodwill impairment charges. Going forward, Fitch expects performance to revert closer to historical levels. In fact, during the first nine months of 2011, the reported ROA was 0.82%, which falls in line with similarly-rated peers. The recent improvement in profitability is driven primarily by lower provisioning and a reduction in non-interest expenses.

Asset quality metrics have improved over the first nine months of 2011. However, overall NPA levels, inclusive of accruing TDRs, remain elevated and Fitch has some concerns regarding the bank's Home Equity portfolio, which represents 25% of the overall loan book. Given the more stable geography of its markets and disciplined underwriting in its continuing portfolio, Fitch expects credit stress to remain at manageable levels. Overall, the economy of WBS' footprint has fared better than other regions during the recession, as NPAs and net charge-offs (NCOs) at New England banks continue to run at significantly lower levels than national averages.

Fitch views WBS' elevated level of TDRs as a potential concern, as modified loans have a tendency to default at a higher rate than performing loans. That being said, WBS' TDR portfolio has exhibited better performance than many of its peers. Furthermore, the recent accounting guidance on TDRs did not have a material impact on WBS, and TDR levels have declined modestly over the last two quarters. Nevertheless, performance of the modified loans bears monitoring, particularly in light of a sluggish economic recovery.

Webster's current capital levels are adequate given the company's risk profile, in Fitch's view. That being said, any meaningful reduction in capital levels may lead to negative pressure on the ratings or Outlook. As the company continues to grow its commercial portfolio, Fitch would expect to see stronger tangible capital metrics to compensate for the incremental risk.

Factors that may have positive rating implications on Webster's ratings and/or Outlook include:

--Meaningful decline in the levels of NPAs and TDRs;

--Improvement in tangible capital levels;

--Reduced exposure to home equity loans;

--Continued improvement in profitability measures.

Factors that may negatively affect the ratings:

--Stagnant or rising levels of NPAs or increased credit losses;

--Meaningful reduction in tangible and/or regulatory capital levels;

--Signs of deterioration in the home equity portfolio or TDR book.

Headquartered in Waterbury, Connecticut with approximately $17.5 billion in assets, WBS' branch office coverage is dominated by a heavy presence in Connecticut and to a lesser extent Massachusetts, Rhode Island, and New York.

Fitch has affirmed the following ratings:

Webster Financial Corporation

-- Long-term Issuer Default Rating (IDR) at 'BBB', Stable Outlook;

-- Senior Unsecured at 'BBB';

-- Viability Rating at 'bbb';

-- Individual at 'C';

-- Preferred Stock at 'BB+';

-- Short-term IDR at 'F2';

-- Support at '5';

-- Support Floor at 'NF'.

Webster Bank, NA

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

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

-- Viability Rating at 'bbb';

-- Individual at 'C';

-- Subordinated Debt at 'BBB-';

-- Short-term IDR at 'F2';

-- Short-term Deposits at 'F2';

-- Support at '5';

-- Support Floor at 'NF'.

Webster Capital Trust IV

Webster Preferred Capital Corp

-- Preferred Stock at 'BB+'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria', Aug. 16, 2011;

--'Troubled Debt Restructuring (Challenges for Ratio Analysis)', April 22, 2011;

--'Fitch U.S. Banking Quarterly 2Q'11: Eurozone Risk Manageable Thus Far', Aug. 31, 2011;

--'Revisiting U.S. Banks' Home Equity Portfolios', June 9, 2010.

Applicable Criteria and Related Research:

Revisiting U.S. Banks??? Home Equity Portfolios: Have Losses Abated or Is More Pain in Store?

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=531687

Troubled Debt Restructuring (Challenges for Ratio Analysis)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=512825

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171

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