Washington Trust Announces Second Quarter 2013 Earnings

Washington Trust Announces Second Quarter 2013 Earnings

WESTERLY, R.I.--(BUSINESS WIRE)-- Washington Trust Bancorp, Inc. (NASDAQ Global Select; symbol: WASH), parent company of The Washington Trust Company, today announced second quarter 2013 net income of $9.0 million, or 54 cents per diluted share. These results compare to first quarter of 2013 net income of $7.4 million, or 45 cents per diluted share, and second quarter of 2012 net income of $8.7 million, or 53 cents per diluted share.

"Washington Trust posted another quarter of solid operating results, with a continuation of strong commercial loan growth and healthy mortgage banking activity," stated Joseph J. MarcAurele, Chairman, President and CEO. "We continue to attract and build customer relationships across all business lines, reinforcing our position as Rhode Island's Bank of Choice."


Highlights for the quarter or at June 30th include:

  • Total loans were $2.38 billion at June 30, 2013, up by $59.9 million, or 3%, in the second quarter of 2013, led by growth of $33.7 million, or 4%, in the commercial real estate portfolio.

  • Deposits totaled $2.30 billion at June 30, 2013, down slightly from March 31, 2013, reflecting seasonal outflow. Total deposits were up by $174.2 million, or 8%, in the last twelve months.

  • The returns on average equity and average assets for the second quarter of 2013 were 11.84% and 1.18%, respectively. Comparable amounts for the first quarter of 2013 were 9.91% and 0.98%, respectively.

2013 results also included the following transactions:

  • During the second quarter of 2013, certain junior subordinated debentures were redeemed and as a result, unamortized debt issuance costs of $244 thousand were expensed and classified as interest expense in the quarter. The after-tax impact of this was 1 cent per diluted share.

  • Included in salaries and employee benefits expense in the second quarter of 2013 was $270 thousand for severance related matters. The after-tax impact of this was 1 cent per diluted share.

  • In the first quarter of 2013, the Corporation had recognized an other-than-temporary impairment ("OTTI") charge to earnings on a trust preferred collateralized debt obligation investment security of $2.8 million (or 11 cents per diluted share). There were no such charges in the second quarter of 2013.

Net Interest Income

Net interest income totaled $22.4 million for the second quarter of 2013, essentially flat compared to the first quarter of 2013. The net interest margin for the second quarter of 2013 was 3.26%, compared to 3.32% for the first quarter of 2013.

In connection with the June 2013 redemption of $10.3 million of junior subordinated debentures, unamortized debt issuance costs of $244 thousand were expensed and classified as interest expense in the quarter. The impact of this item was an increase of 4 basis points on the cost of funds and a reduction of 4 basis points on the net interest margin for the second quarter 2013. The rate on this debt was approximately 5.69% at the time of redemption, which included the cost of a related interest rate swap that matured upon the redemption event.

Average interest-earning assets for the second quarter of 2013 increased by $14.4 million, while the yield on interest-earning assets declined by 7 basis points from the previous quarter. Average loan balances grew by $57 million, which were partially offset by payments received on mortgage-backed securities in the investment security portfolio.

Noninterest Income

Noninterest income totaled $16.4 million for the second quarter of 2013, compared to $13.2 million for the previous quarter. In the first quarter 2013, OTTI charges of $2.8 million were recognized. Excluding this item, noninterest income increased by $456 thousand, or 3%, on a linked quarter basis. Other significant linked quarter changes included the following:

  • Wealth management revenues were up by $438 thousand, or 6%, including a $344 thousand increase in tax preparation fees, which are typically concentrated in the second quarter.

  • Mortgage banking revenues decreased by $681 thousand, or 16%, reflecting a lower level of mortgage loan refinancing activity due to rising market interest rates. In the second quarter of 2013, residential loans sold to the secondary market amounted to $132 million, compared to $153 million in the previous quarter.

  • Merchant processing fee revenue rose by $636 thousand, or 32%, on a linked quarter basis, reflecting an increase in the volume of transactions processed for customers. See discussion regarding corresponding increase in merchant processing costs described below.

Noninterest Expenses

Noninterest expenses totaled $25.0 million for the second quarter of 2013, compared to $24.2 million for the previous quarter. Included in salaries and employee benefits expense in the second quarter of 2013 was $270 thousand for severance related matters. Excluding this item, noninterest expenses increased by $551 thousand, or 2%, on a linked quarter basis, largely due to a $538 thousand, or 32%, increase in merchant processing costs. See the discussion above regarding the corresponding increase in merchant processing fee income.

Asset Quality

Total nonaccrual loans decreased by $5.6 million to $20.0 million, or 0.84% of total loans, at June 30, 2013, from $25.7 million, or 1.10%, at March 31, 2013, largely reflecting charge-offs and payoffs on commercial loans. Total past due loans amounted to $26.1 million, or 1.09% of total loans, at June 30, 2013, compared to $26.2 million, or 1.13%, at March 31, 2013.

The loan loss provision charged to earnings amounted to $700 thousand for the second quarter of 2013, compared to $600 thousand for the first quarter of 2013. Net charge-offs amounted to $4.0 million in the second quarter of 2013 and was comprised primarily of a $4.0 million charge-off on one commercial mortgage loan. The remaining carrying value of this loan was $1.0 million at June 30, 2013. Net charge-offs totaled $334 thousand in the first quarter of 2013.

The allowance for loan losses was $27.9 million, or 1.17% of total loans, at June 30, 2013 compared to $31.1 million, or 1.34% of total loans, at March 31, 2013. The decline in the ratio of the allowance for loan losses to total loans reflects charge-offs and a decrease in specific reserves on impaired loans.

Loans

Total loans rose by $59.9 million in the second quarter of 2013, with increases in commercial loans of $33.0 million, or 3%, and residential loans of $24.5 million, or 3%. Total loans were up by $91.0 million, or 4%, from December 31, 2012 and by $171.1 million, or 8%, from June 30, 2012.

Investment Securities

The investment securities portfolio declined by $36.6 million from March 31, 2013 and by $65.4 million from December 31, 2012, largely due to principal payments received on mortgage-backed securities which were not reinvested in the securities portfolio.

Deposits and Borrowings

Total deposits decreased by $15.0 million from March 31, 2013 and by $8.0 million from December 31, 2012. In the last twelve months, total deposits grew by $174.2 million, or 8%, including an increase of $75.3 million, or 13%, in demand deposits and NOW account balances.

FHLBB advances increased by $32.1 million from March 31, 2013 and by $12.2 million from December 31, 2012. Junior subordinated debentures declined by $10.3 million from both March 31, 2013 and December 31, 2012, reflecting the June 2013 redemption of the junior subordinated debentures issued to and held by Washington Preferred Capital Trust.

Capital Management

Capital levels continued to exceed the regulatory minimum levels to be considered well capitalized, with a total risk-based capital ratio of 12.93% at June 30, 2013, compared to 13.26% at December 31, 2012. Total shareholder's equity was $303.4 million at June 30, 2013, up by $7.7 million from the balance at December 31, 2012.

Dividends Declared

The Board of Directors declared a quarterly dividend of 25 cents per share for the quarter ended June 30, 2013. The dividend was paid on July 12, 2013 to shareholders of record on July 1, 2013.

Conference Call

Washington Trust will host a conference call to discuss second quarter results on Tuesday, July 23, 2013 at 8:30 am (Eastern Time). Individuals may dial in to the call at 1-888-317-6016. An audio replay of the call will be available by dialing 1-877-344-7529 and entering Conference Number 10030244; the audio replay will be available until 9:00 a.m. on August 7, 2013. A webcast of the call will be posted in the Investor Relations section of Washington Trust's web site, www.washtrust.com, shortly after the conclusion of the call and will be available through September 30, 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 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, 2012, 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)

Jun 30,
2013

Dec 31,
2012

Assets:

Cash and due from banks

$

79,903

$

73,474

Short-term investments

3,764

19,176

Mortgage loans held for sale, at fair value; amortized cost $29,163 in 2013 and $48,370 in 2012

28,889

50,056

Securities:

Available for sale, at fair value; amortized cost $309,421 in 2013 and $363,408 in 2012

316,714

375,498

Held to maturity, at cost; fair value $33,762 in 2013 and $41,420 in 2012

33,803

40,381

Total securities

350,517

415,879

Federal Home Loan Bank stock, at cost

37,730

40,418

Loans:

Commercial

1,310,114

1,252,419

Residential real estate

748,871

717,681

Consumer

325,995

323,903

Total loans

2,384,980

2,294,003

Less allowance for loan losses

27,884

30,873

Net loans

2,357,096

2,263,130

Premises and equipment, net

26,392

27,232

Investment in bank-owned life insurance

55,750

54,823

Goodwill

58,114

58,114

Identifiable intangible assets, net

5,827

6,173

Other assets

57,325

63,409

Total assets

$

3,061,307

$

3,071,884

Liabilities:

Deposits:

Demand deposits

$

358,797

$

379,889

NOW accounts

301,096

291,174

Money market accounts

540,012

496,402

Savings accounts

293,405

274,934

Time deposits

811,299

870,232

Total deposits

2,304,609

2,312,631

Federal Home Loan Bank advances

373,341

361,172

Junior subordinated debentures

22,681

32,991

Other borrowings

199

1,212

Other liabilities

57,107

68,226

Total liabilities

2,757,937

2,776,232

Shareholders' Equity:

Common stock of $.0625 par value; authorized 30,000,000 shares; issued and outstanding 16,487,305 shares in 2013 and 16,379,771 shares in 2012

1,030

1,024

Paid-in capital

93,274

91,453

Retained earnings

221,761

213,674

Accumulated other comprehensive loss

(12,695

)

(10,499

)

Total shareholders' equity

303,370

295,652

Total liabilities and shareholders' equity

$

3,061,307

$

3,071,884

Washington Trust Bancorp, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

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

Three Months

Six Months

Periods Ended June 30,

2013

2012

2013

2012

Interest income:

Interest and fees on loans

$

25,513

$

25,344

$

50,736

$

50,707

Interest on securities:

Taxable

2,576

4,069

5,421

8,446

Nontaxable

647

682

1,306

1,375

Dividends on corporate stock and Federal Home Loan Bank stock

39

78

77

155

Other interest income

24

17

52

37

Total interest income

28,799

30,190

57,592

60,720

Interest expense:

Deposits

3,096

3,385

6,290

6,819

Federal Home Loan Bank advances

2,679

3,998

5,416

8,083

Junior subordinated debentures

612

391

1,002

783

Other interest expense

3

5

8

239

Total interest expense

6,390

7,779

12,716

15,924

Net interest income

22,409

22,411

44,876

44,796

Provision for loan losses

700

600

1,300

1,500

Net interest income after provision for loan losses

21,709

21,811

43,576

43,296

Noninterest income:

Wealth management services:

Trust and investment advisory fees

6,230

5,819

12,296

11,597

Mutual fund fees

1,077

1,002

2,099

2,027

Financial planning, commissions and other service fees

605

652

991

1,034

Wealth management services

7,912

7,473

15,386

14,658

Service charges on deposit accounts

790

764

1,581

1,523

Merchant processing fees

2,613

2,732

4,590

4,720

Card interchange fees

683