Webster Bank reports $644M profit for 2022, boosted by Sterling merger

WEBSTER FINANCIAL CORP. reported a $644.3 million profit for 2022 on Thursday. / PBN FILE PHOTO

STAMFORD, Conn. – Webster Financial Corp. continues to reap financial benefits – and some extra costs – from a $10.3 billion merger with a New York bank that closed a year ago.

The parent company for Webster Bank on Thursday reported a $644.3 million profit for 2022, marking a 57.6% increase over the prior year. Driving the increase was Webster’s $10.3 billion merger with Sterling Bancorp, which closed in January 2022. The deal between the two banks helped Webster boost its interest-earning assets, which was compounded by a series of aggressive federal interest rate hikes this year.

Indeed, annual interest income of $2.3 billion is more than double the prior year, with the biggest gains in interest and fees on loans and leases. 

However, interest income gains were partially offset by higher costs from the merger; the company’s 2022 balance sheet included $433.2 million of initial non-purchase credit deteriorated (non-PCD) provision, merger-related, strategic initiatives, and other charges. Including these costs, annual non-interest expenses rose 87.4% to $1.4 billion.

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Diluted earnings per share fell 70 cents to $3.72 per share.

Interest expenses also spiked as a result of higher interest rates, increasing nearly six-fold to $250.4 million. 

Also reflecting higher interest rates, the net interest margin – the difference between interest income generated and the amount paid out to lenders – was up 65 basis points year-over-year to 3.49%.

Mirroring actions taken by financial institutions nationwide, the company also aggressively added to its loan loss provisions to guard against recession-induced bad loans, adding $280.6 million to its reserves in 2022, compared with the $54.5 million it dumped from its stockpile in 2021.

Non-interest income of $440.8 million marked a 36.3% rise over a year ago, driven by gains in deposit service and loan and lease fees and mortgage banking activities (also bolstered by the Sterling merger). This was partially offset by a $6.8 million loss in the cash surrender value of life insurance policies, reflecting recent market downturns.

Total assets stood at $71.3 billion as of Dec. 31, more than double the prior year, driven by a nearly 150% increase in total loans and leases to $49.8 billion. Commercial loans and commercial real estate loans saw the most significant increases. 

Total deposits more than doubled to $63.2 billion, with the biggest gains in demand deposits, interest-bearing checking, money market and savings accounts.

The company also reported $244.8 million fourth-quarter profit, up 120.4% over the fourth quarter of 2021. Rising interest rates and more interest-bearing assets from the merger helped propel the earnings increase, with interest income more than tripling to $743.6 million.

These factors also contributed to rising interest expenses, with the $141.2 million in quarterly interest costs marking a 15-fold increase over a year prior.

Also cutting into quarterly profits, the company added $43 million to its loan loss reserves in the fourth quarter, versus the $15 million it released in the fourth quarter of 2021.

Meanwhile, quarterly interest expenses of $348.4 million marked an 83.5% increase over the fourth quarter of 2021, again driven by $50.4 million in merger-related costs.

Quarterly non-interest income rose 13.4% to $102.2 million, with a three-fold increase in loan and lease-related fees, partially offset by losses in wealth and investment service fees and net sale of investment securities. 

“With a continued focus on our clients, colleagues, and communities, we are pleased to report strong financial results in the quarter and for the full-year 2022,” John R. Ciulla, CEO and president, said in a statement. “As pleased as we are with our financial performance, we are equally proud of the progress we have made from a culture and talent perspective.”  

Webster held the 10th largest-share of in-market deposits in Rhode Island as of June 30, according to the Federal Deposit Insurance Corp.

Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.

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