WATERBURY, Conn. – Webster Financial Corp., the parent company for Webster Bank, on Thursday reported a 42.4% drop in profits over the prior year, primarily driven by 264% increase in the money set aside for potential bad loans.
The $220.6 million earnings for 2020 includes a $137,800 provision for credit losses, a 264% increase over the $37,800 reserve build in 2019.
Yearly earnings per diluted share also fell from $4.06 to $2.35.
Total revenue dipped 10.6% year over year, ending 2020 at $1.3 billion, reflecting a drop in interest income amid a continued low interest rate environment. While annual interest income of $1.0 billion represented a 13.2% decrease over the prior year, noninterest come remained flat at $285.3 million. However, fees specifically derived from mortgage banking activities increased threefold to $18,300 partially offset by slight decreases in income from deposit service fees and loan and lease-related fees.
Net interest income, the difference between interest earned on assets like loans, mortgages and securities and interest paid out to customer deposits, totaled $891.4 million, a 6.7% decrease over the prior year.
Net interest margin, the difference between interest income generated versus the amount of interest paid out to lenders, also declined by 55 basis points to 3.00%.
Noninterest expenses rose 6% to $758,900, including an 8% bump in employee compensation and benefits.
Average year-end assets stood at $32.3 billion, a rise of 11% over the prior year as a result of increases in loans and leases and investment securities. Commercial and commercial real estate loans drove the 8% growth in loans, which had an average balance of $21.4 trillion as of Dec. 31, along with the $1.3 billion through the bank’s participation in the Paycheck Protection Program.
Average 2020 deposits were $26 billion, a 13.5% increase over the prior year driven by a 24.5% spike in demand deposits as well as increases in interest-bearing checking, money market and savings accounts.
For the fourth quarter, the bank brought in a $60 million profit, 33.6% less than earnings in quarter four of 2019. However, the company decreased its credit loss reserve in the fourth quarter by $1 million, versus the $6 million allocation a year ago. Total quarterly revenue dropped 11.4% to $312.8 million, resulting from decreased interest income on a low interest rate environment which was partially offset by a nearly 50% increase in income from fees on mortgage banking activities, as well as other noninterest income.
Despite a dramatic increase over the course of 2020 in its provision for credit losses, the company has not yet reported major repercussions in terms of net charge offs for bad loans. Quarterly net charge offs of $9.4 million were above the $6.1 million in quarter four of 2019, but less than the $11.5 million in the quarter immediately prior.
“I am pleased with the results of the quarter as we continue to deliver for our customers and communities as evidenced, in part, by $1.9 billion of quarterly loan originations while maintaining solid credit quality,” John R. Ciulla, chairman and chief executive officer, said in a statement. “We remain focused on our strategic priorities and positioning ourselves for growth as the macro environment improves in 2021.”
Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.
