Washington Trust Announces Record Earnings for Fourth Quarter and Full Year 2012

Washington Trust Announces Record Earnings for Fourth Quarter and Full Year 2012

Diluted Earnings Per Share up 17% over 2011

WESTERLY, R.I.--(BUSINESS WIRE)-- Washington Trust Bancorp, Inc. (NASDAQ Global Select; symbol: WASH), parent company of The Washington Trust Company, today announced fourth quarter 2012 net income of $9.0 million, or $0.55 per diluted share. On a diluted earnings per share basis, fourth quarter 2012 results were up by $.01, or 2%, from third quarter 2012 and by $.08, or 17%, from fourth quarter 2011.


For the year ended December 31, 2012, net income totaled $35.1 million, or $2.13 per diluted share, compared to $29.7 million, or $1.82 per diluted share, for 2011. On a diluted earnings per share basis, 2012 earnings were up by 17% over 2011. The returns on average equity and average assets for 2012 were 11.97% and 1.16%, respectively, compared to 10.61% and 1.02%, respectively, for 2011.

"Washington Trust had another exceptional performance in 2012, highlighted by record earnings and growth along key business lines," stated Joseph J. MarcAurele, Washington Trust Chairman, President and CEO. "We have continued to manage our way through these challenging economic times by successfully expanding our market reach, attracting new client relationships, and continuing to make a difference in the communities in which we live and work."

Selected financial highlights for the fourth quarter of 2012 included:

  • The returns on average equity and average assets for the quarter were 12.01% and 1.19%, respectively, compared to 12.02% and 1.17%, respectively, for the third quarter of 2012.

  • Residential mortgage origination volume and mortgage banking revenues (net gains on loan sales and commissions on loans originated for others) reached an all-time quarterly high and totaled $4.5 million for the quarter, a 28% increase over the prior quarter.

  • Loans totaled $2.3 billion at December 31, 2012, up by $37.3 million, or 2%, from September 30, 2012, led by growth in the commercial loan portfolio.

  • Total deposits amounted to $2.3 billion at December 31, 2012, up $78.0 million, or 3.5%, from September 30, 2012, with growth in lower-cost deposits.

The following transactions were included in the results for fourth quarter of 2012:

  • Balance sheet management transactions were conducted in the quarter and were comprised of:

    • The sale of mortgage-backed securities with an amortized cost of $33.1 million, resulting in fourth quarter 2012 net realized gains of $924 thousand.

    • The prepayment of Federal Home Loan Bank of Boston ("FHLBB") advances totaling $38.8 million, resulting in debt prepayment penalty expense of $1.8 million in the quarter.

    • The modification of terms of $33.2 million of FHLBB advances with a weighted average maturity of 43 months into longer-term advances with a weighted average maturity of 78 months.

    • These transactions resulted in net interest income enhancement of approximately $45 thousand in the fourth quarter of 2012 and are expected to result in net interest income enhancement of approximately $577 thousand in 2013, with continuing benefits in future years.

  • A relatively large commercial loan prepayment penalty fee of $357 thousand was received and included in net interest income.

  • Two significant insurance commission fees totaling $462 thousand were received in the quarter and reported in wealth management revenues.

  • The Corporation made a $400 thousand contribution to its charitable foundation, which was classified in other noninterest expenses.

The net impact of these transactions was a reduction in earnings of 2 cents per diluted share in the fourth quarter of 2012.

Net Interest Income

The net interest margin for the fourth quarter of 2012 was 3.33%. Excluding the impact of the above mentioned commercial loan prepayment penalty fee, the net interest margin for the fourth quarter of 2012 was 3.28%, unchanged from the previous quarter and up by 6 basis points from 3.22% in the fourth quarter of 2011. The year over year improvement in the net interest margin largely reflected a reduction in the cost of funds.

Average interest-earning assets for the fourth quarter of 2012 increased by $6.8 million from the previous quarter and by $58.7 million from the fourth quarter of 2011, reflecting solid loan growth partially offset by reductions in the securities portfolio.

Fourth quarter 2012 net interest income amounted to $23.2 million. Excluding the fourth quarter 2012 fee, net interest income was up slightly compared to the previous quarter and up by $792 thousand, or 4%, compared to the fourth quarter of 2011.

Noninterest Income

Noninterest income for the fourth quarter of 2012 totaled $17.9 million, up by $966 thousand, or 6%, from the previous quarter and up by $3.1 million, or 21%, from the fourth quarter of 2011. Included in noninterest income were:

  • Fourth quarter 2012 wealth management insurance commission fees of $462 thousand mentioned above;

  • Net realized gains on sales of securities of $924 thousand in the fourth quarter of 2012;

  • A $528 thousand non-taxable gain related to the receipt of BOLI proceeds in the third quarter of 2012; and

  • $501 thousand of net realized gains on sales of securities recognized in the fourth quarter of 2011.

Excluding these items, noninterest income for the fourth quarter of 2012 increased by $108 thousand, or 1%, from the previous quarter and up by $2.2 million, or 15%, from the fourth quarter of 2011. Significant changes in noninterest income, on this basis, included the following:

  • Mortgage banking revenues increased by $972 thousand, or 28%, from the third quarter of 2012 and by $1.5 million, or 53%, from the fourth quarter of 2011, due to a record quarter of mortgage origination and sales activity.

  • Fourth quarter 2012 wealth management revenues were $7.8 million. Excluding the above mentioned insurance commission fees, these revenues were up by $135 thousand, or 2%, on a linked quarter basis and up by $403 thousand, or 6%, compared to the fourth quarter of 2011.

  • Merchant processing fees totaled $2.2 million for the fourth quarter of 2012, down by $975 thousand, or 30%, on a linked quarter basis and up by $176 thousand, or 9%, compared to the fourth quarter of 2011. On a linked quarter basis, the decline reflects a seasonal decrease in the volume of transactions processed for customers. See discussion on the corresponding linked quarter decrease in merchant processing costs under the caption "Noninterest Expenses."

Noninterest Expenses

Noninterest expenses totaled $27.4 million for the fourth quarter of 2012, up by $1.1 million, or 4%, from the previous quarter and up by $2.6 million, or 11%, from the fourth quarter of 2011. Included in noninterest expenses were:

  • Debt prepayment penalties of $1.8 million in the fourth quarter of 2012, $1.2 million in third quarter of 2012 and $473 thousand in the fourth quarter of 2011; and

  • Charitable contribution expense of $400 thousand in the fourth quarter of 2012 and $990 thousand in the fourth quarter of 2011.

Excluding these items, noninterest expenses for the fourth quarter of 2012 increased by $130 thousand, or 1%, from the previous quarter and up by $1.9 million, or 8%, from the fourth quarter of 2011. Significant changes in noninterest expenses, on this basis, included the following:

  • Salaries and employee benefit costs amounted to $15.7 million in the fourth quarter of 2012, an increase of $447 thousand, or 3%, from the previous quarter and up by $1.7 million, or 12%, from the fourth quarter of 2011, reflecting higher staffing levels to support growth and higher levels of business development based compensation primarily in mortgage banking.

  • Merchant processing costs totaled $1.9 million in the fourth quarter of 2012, down by $804 thousand, or 30%, on a linked quarter basis and up by $138 thousand, or 8%, compared to the fourth quarter of 2011. See the discussion above regarding the corresponding linked quarter decrease in merchant processing fee income.

Income tax expense amounted to $4.0 million for the fourth quarter of 2012, compared to $3.9 million for the third quarter of 2012 and $3.3 million for the fourth quarter of 2011. The effective tax rate for the fourth quarter of 2012 was 30.8%, compared to 30.3% for the previous quarter and 29.7% for the fourth quarter of 2011. Based on the current status of federal and applicable state income tax statutes, the Corporation currently expects the 2013 effective tax rate to be approximately 31.8%.

Asset Quality

Total nonaccrual loans amounted to $22.5 million, or 0.98% of total loans, at December 31, 2012, up by $4.8 million from September 30, 2012. At December 31, 2012, total past due loans amounted to $28.1 million, or 1.22% of total loans, up by $4.5 million from September 30, 2012. These changes in nonaccrual loans and past due loans are largely associated with a small number of larger commercial relationships.

The loan loss provision charged to earnings amounted to $600 thousand for the fourth quarter of 2012, level with the third quarter of 2012 and down by $400 thousand from the fourth quarter of 2011. Net charge-offs amounted to $479 thousand in the fourth quarter of 2012, compared to net charge-offs of $296 thousand in the third quarter of 2012 and $839 thousand in the fourth quarter of 2011.

The allowance for loan losses was $30.9 million, or 1.35% of total loans, at December 31, 2012 compared to $30.8 million, or 1.36% of total loans, at September 30, 2012.

Loans

Total loans rose by $37.3 million, or 2%, in the fourth quarter of 2012, with increases in commercial loans of $33.1 million. Total loans are up by $146.8 million, or 7%, from December 31, 2011, including a $127.8 million, or 11%, increase in total commercial loans.

Investment Securities

The investment securities portfolio amounted to $415.9 million at December 31, 2012, down by $68.0 million from September 30, 2012 and down by $177.5 million from December 31, 2011, primarily due to principal payments received on mortgage-backed securities not being reinvested and balance sheet management transactions that included the sale of mortgage-backed securities.

Deposits and Borrowings

Total deposits increased by $78.0 million, or 3%, in the fourth quarter of 2012 and by $186.3 million, or 9%, since December 31, 2011, reflecting growth in lower-cost non-time categories of deposits.

FHLBB advances totaled $361.2 million at December 31, 2012, down by $56.5 million from September 30, 2012 and down by $179.3 million from December 31, 2011. In addition to balance sheet management transactions, this decline reflects less demand for wholesale funding due to the strong deposit growth.

Other borrowings were $1.2 million at December 31, 2012, compared to $229 thousand at September 30, 2012 and $19.8 million at December 31, 2011. The decline in other borrowings from the balance at December 31, 2011, was primarily due to the maturity of securities sold under repurchase agreements.

Capital Management

Capital levels continued to exceed the regulatory minimum levels to be considered well capitalized, with a total risk-based capital ratio of 13.26% at December 31, 2012, compared to 12.86% at December 31, 2011. Total shareholder's equity was $295.7 million at December 31, 2012, down by $2.7 million from the balance at September 30, 2012 and up by $14.3 million from the balance at December 31, 2011. A charge of $6.1 million to the accumulated other comprehensive income component of shareholders' equity was recorded at December 31, 2012, associated with the periodic remeasurement of the value of defined benefit pension liabilities. This charge was largely due to a decline in the discount rates used to measure the present value of pension liabilities as a result of a reduction in market rates of interest.

Dividends Declared

The Board of Directors declared a quarterly dividend of 24 cents per share for the quarter ended December 31, 2012. The dividend was paid on January 11, 2013 to shareholders of record on January 2, 2013.

Conference Call

Washington Trust will host a conference call on Thursday, January 31, 2013 at 8:30 a.m. Eastern Time to discuss fourth quarter results and business outlook. This call is being webcast and can be accessed through the Investor Relations section of the Washington Trust web site, www.washtrust.com. Individuals may dial in to the call at 1-866-250-8117. The international dial-in number is 1-412-317-6011 and the Canada dial-in number is 1-855-669-9657. A replay of the call will be posted in this same location on the web site shortly after the conclusion of the call. To listen to the replay, dial 1-877-344-7529. For international access, dial 1-412-317-0088. The Conference Number for replay is 10023365. The replay will be available until 9:00 a.m. on February 15, 2013.

Background

Washington Trust Bancorp, Inc. is the parent of The Washington Trust Company, a state-chartered bank headquartered in Westerly, Rhode Island. Founded in 1800, Washington Trust is the oldest community bank in the nation and is the largest independent bank headquartered in Rhode Island. Washington Trust offers a full range of financial services, including commercial banking, small business banking, personal banking, and wealth management and trust services through its offices located in Rhode Island, Connecticut and Massachusetts. The Corporation's common stock trades on The NASDAQ Global Select® Stock Market under the symbol WASH. Investor information is available on the Corporation's web site: www.washtrust.com.

Forward-Looking Statements

This press release contains certain statements that are "forward-looking statements". We may also make written or oral forward-looking statements in other documents we file with the SEC, in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees. You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," "outlook," "will," "should," and other expressions that predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of Washington Trust. These risks, uncertainties and other factors may cause the actual results, performance or achievements of Washington Trust to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.

Some of the factors that might cause these differences include the following: continued weakness in general national, regional or international economic conditions or conditions affecting the banking or financial services industries or financial capital markets, volatility and disruption in national and international financial markets, government intervention in the U.S. financial system, reductions in net interest income resulting from interest rate volatility as well as changes in the balance and mix of loans and deposits, reductions in the market value of wealth management assets under administration, changes in the value of securities and other assets, reductions in loan demand, changes in loan collectibility, default and charge-off rates, changes in the size and nature of Washington Trust's competition, changes in legislation or regulation and accounting principles, policies and guidelines, and changes in the assumptions used in making such forward-looking statements. In addition, the factors described under "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as filed with the Securities and Exchange Commission and as updated by our Quarterly Reports on Form 10-Q, may result in these differences. You should carefully review all of these factors, and you should be aware that there may be other factors that could cause these differences. These forward-looking statements were based on information, plans and estimates at the date of this press release, and Washington Trust assumes no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

Supplemental Information - Explanation of Non-GAAP Financial Measures

In addition to results presented in accordance with generally accepted accounting principles ("GAAP"), this press release contains certain non-GAAP financial measures. Washington Trust's management believes that the supplemental non-GAAP information, which consists of measurements and ratios based on tangible equity and tangible assets, is utilized by regulators and market analysts to evaluate a company's financial condition and therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.

Washington Trust Bancorp, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS (unaudited)

(Dollars in thousands, except par value)

Dec 31,
2012

Dec 31,
2011

Assets:

Cash and due from banks

$73,474

$82,238

Short-term investments

19,176

4,782

Mortgage loans held for sale, at fair value; amortized cost $48,370 in 2012 and $19,624 in 2011

50,056

20,340

Securities:

Available for sale, at fair value; amortized cost $363,408 in 2012 and $524,036 in 2011

375,498

541,253

Held to maturity, at cost; fair value $41,420 in 2012 and $52,499 in 2011

40,381

52,139

Total securities

415,879

593,392

Federal Home Loan Bank stock, at cost

40,418

42,008

Loans:

Commercial and other

1,252,419

1,124,628

Residential real estate

717,681

700,414

Consumer

323,903

322,117

Total loans

2,294,003

2,147,159

Less allowance for loan losses

30,873

29,802

Net loans

2,263,130

2,117,357

Premises and equipment, net

27,232

26,028

Investment in bank-owned life insurance

54,823

53,783

Goodwill

58,114

58,114

Identifiable intangible assets, net

6,173

6,901

Other assets

63,409

59,155

Total assets

$3,071,884

$3,064,098

Liabilities:

Deposits:

Demand deposits

$379,889

$339,809

NOW accounts

291,174

257,031

Money market accounts

496,402

406,777

Savings accounts

274,934

243,904

Time deposits

870,232

878,794

Total deposits

2,312,631

2,126,315

Federal Home Loan Bank advances

361,172

540,450

Junior subordinated debentures

32,991

32,991

Other borrowings

1,212

19,758

Other liabilities

68,226

63,233

Total liabilities

2,776,232

2,782,747

Shareholders' Equity:

Common stock of $.0625 par value; authorized 30,000,000 shares; issued and outstanding 16,379,771 shares in 2012 and 16,292,471 shares in 2011

1,024

1,018

Paid-in capital

91,453

88,030

Retained earnings

213,674

194,198

Accumulated other comprehensive loss

(10,499

)

(1,895

)

Total shareholders' equity

295,652

281,351

Total liabilities and shareholders' equity

$3,071,884

$3,064,098

Washington Trust Bancorp, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(Dollars and shares in thousands, except per share amounts)

Three Months

Twelve Months

Periods ended December 31,

2012

2011

2012

2011

Interest income:

Interest and fees on loans

$26,109

$25,284

$102,656

$99,319

Interest on securities:

Taxable

3,241

4,422

15,359

18,704

Nontaxable

664

727

2,699

3,001

Dividends on corporate stock and Federal Home Loan Bank stock

49

57

256

253

Other interest income

27

17

91

69

Total interest income

30,090

30,507

121,061

121,346

Interest expense:

Deposits

3,380

3,652

13,590

15,692

Federal Home Loan Bank advances

3,148

4,202

14,957

18,158

Junior subordinated debentures

394

393

1,570

1,568

Other interest expense

4

245

248

973

Total interest expense

6,926

8,492

30,365

36,391

Net interest income

23,164

22,015

90,696

84,955

Provision for loan losses

600

1,000

2,700

4,700

Net interest income after provision for loan losses

22,564

21,015

87,996

80,255

Noninterest income:

Wealth management services:

Trust and investment advisory fees

5,991

5,487

23,465

22,532

Mutual fund fees

1,018

994

4,069

4,287

Financial planning, commissions and other service fees

781

444

2,107

1,487

Wealth management services

7,790

6,925

29,641

28,306

Service charges on deposit accounts

837

793

3,193

3,455

Merchant processing fees

2,232

2,056

10,159

9,905

Card interchange fees

636

584

2,480

2,249

Income from bank-owned life insurance

479

493

2,448

1,939

Net gains on loan sales and commissions on loans originated for others

4,476

2,935

14,092

5,074

Net realized gains on securities

924

501

1,223

698

Net gains on interest rate swap contracts

168

12

255

6

Equity in earnings (losses) of unconsolidated subsidiaries

82

220

196

(213

)

Other income

275

307

1,748

1,536

Noninterest income, excluding other-than-temporary impairment losses

17,899

14,826

65,435

52,955

Total other-than-temporary impairment losses on securities

57

(28

)

(54

)

Portion of loss recognized in other comprehensive income (before tax)

(69

)

(193

)

(137

)

Net impairment losses recognized in earnings

(12

)

(221

)

(191

)

Total noninterest income