Rating Action: Moody's confirms Webster's ratings (long-term issuer Baa1) following completion of acquisition of Sterling Bancorp, concluding review; outlook negativeGlobal Credit Research - 01 Feb 2022New York, February 01, 2022 -- Moody's Investors Service, ("Moody's") has confirmed the ratings and assessments of Webster Financial Corporation and Webster Bank N.A, including the bank's a3 standalone Baseline Credit Assessment (BCA). The bank's Prime-1 short-term deposit rating and the Prime-2 short-term counterparty risk rating were affirmed.This rating action concludes the review for downgrade initiated on 20 April 2021, following Webster's announcement that it agreed to acquire New York-based Sterling Bancorp ("Sterling") in an all-stock transaction, and was prompted by today's announcement of the close of the transaction. Following the ratings confirmation, the outlook on Webster is negative to reflect Moody's assessment that integration risks associated with merging two banks of similar size continue to weigh on the standalone credit profile and ratings of the combined bank.Confirmations:.. Issuer: Webster Bank N.A..... Adjusted Baseline Credit Assessment, Confirmed at a3.... Baseline Credit Assessment, Confirmed at a3.... Long term Counterparty Risk Assessment, Confirmed at A2(cr).... Short term Counterparty Risk Assessment, Confirmed at P-1(cr).... Long term Counterparty Risk Rating, Confirmed at A3.... Long term Deposit Rating, Confirmed at A1, Outlook changed to Negative from Rating Under Review.... Issuer Rating, Confirmed at Baa1, Outlook changed to Negative from Rating Under Review.. Issuer: Webster Financial Corporation.... Issuer Rating, Confirmed at Baa1, Outlook changed to Negative from Rating Under Review.... Senior Unsecured Regular Bond/Debenture, Confirmed at Baa1, Outlook changed to Negative from Rating Under Review.... Senior Unsecured Shelf, Confirmed at (P)Baa1.... Subordinate Shelf, Confirmed at (P)Baa1.... Pref. Stock Shelf, Confirmed at (P)Baa2.... Pref. Stock Non-cumulative Shelf, Confirmed at (P)Baa3.... Pref. Stock Non-cumulative, Confirmed at Baa3 (hyb)Affirmations:.. Issuer: Webster Bank N.A..... Short term Counterparty Risk Rating, Affirmed P-2.... Short term Deposit Rating, Affirmed P-1Outlook Actions:.. Issuer: Webster Bank N.A..... Outlook, Changed to Negative from Rating Under Review.. Issuer: Webster Financial Corporation.... Outlook, Changed to Negative from Rating Under ReviewRATINGS RATIONALEThe confirmation of Webster's a3 BCA and ratings reflects Moody's conclusion that its merger with Sterling does not materially weaken Webster's standalone credit profile. During the review, Moody's assessed the significance of integration risks resulting from merging two banks of similar size that have different business profiles, as well the overall asset risk of the combined company.The merger creates a US Northeast regional bank with assets of approximately $65 billion operating under the Webster brand. In Moody's view, however, Webster's merger with Sterling is a complex undertaking because Sterling itself is the product of a number of acquisitions. As such, this large merger poses higher integration risks, which Moody's believes will take time for management to reduce, thereby demonstrating avoidance of significant missteps. These considerations have led Moody's to assign a negative outlook to Webster.Following the close of the merger announced earlier today, Moody's expects Webster will continue to operate with a solid balance sheet, including healthy capitalization and liquidity. Prior to the close of the merger, both Webster and Sterling had very solid regulatory capital positions, as measured by Common Equity Tier 1 (CET1) ratios of 11.77% and 12.50%, respectively, as of 30 September 2021. While Webster is now targeting a lower CET1 capital ratio of 10.5%, Moody's believes Webster's capitalization will remain adequate to protect its creditors from unexpected losses during the integration process.Moody's has indicated that the Sterling acquisition expands Webster's footprint into contiguous New York markets, providing meaningful scale and broadening its deposit base and loan portfolio. It has also noted that Sterling experienced asset quality deterioration in its loan portfolio in 2020 and 2021, particularly in its commercial real estate (CRE) portfolio. Despite this, however, Sterling has executed loan sales of its most troubled CRE loans, reducing its standalone CRE concentration to 3.6 times its Moody's adjusted tangible common equity (Moody's TCE) base at 30 September 2021, compared to 3.9 times at year-end 2020. Webster's credit marks on the acquired assets also provide a cushion against further potential losses in the combined portfolios. On a combined basis, Moody's estimates Webster's CRE concentration will be 2.9 times its TCE base. While higher than Webster's historical level of around 2 times TCE, Moody's expects Webster will not materially increase its CRE concentration over the next 12-18 months.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSGiven the negative outlook, rating upgrades are unlikely over the next 12-18 months. Webster's outlook could return to stable if the bank demonstrates it has materially reduced integration risks, reduces its CRE concentration, and maintains adequate capitalization, while demonstrating continued good credit risk management.Webster's ratings could be downgraded if integration risks crystallize, weakening profitability, if its Moody's TCE ratio declines below 10%, or if the bank displays a notable increase in its risk appetite, which Moody's assessed as no longer being compatible with the current ratings level.The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Megan Fox Vice President - Senior Analyst Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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