Washington Trust Reports First Quarter 2021 Earnings

WESTERLY, R.I., April 21, 2021 /PRNewswire/ -- Washington Trust Bancorp, Inc. (Nasdaq: WASH), parent company of The Washington Trust Company, today announced first quarter 2021 net income of $20.5 million, or $1.17 per diluted share, compared to net income of $18.6 million, or $1.07 per diluted share, for the fourth quarter of 2020. 

"Washington Trust reported strong first quarter results, with an increase in profitability from the fourth quarter of 2020," stated Edward O. Handy III, Washington Trust Chairman and Chief Executive Officer.  "Our team of employees have worked diligently throughout the COVID-19 pandemic to deliver quality service to our customers, and our results reflect the success of their hard work and dedication.  We believe in our team and in our business model, and we are well-positioned to continue to navigate forward."

Selected financial highlights for the first quarter of 2021 include:

• Returns on average equity and average assets for the first quarter were 15.55% and 1.45%, respectively, compared to 13.96% and 1.28%, respectively, in the preceding quarter.
• The provision for credit losses was a negative $2.0 million in the first quarter, compared to a positive $1.8 million in the preceding quarter.
• Mortgage banking revenues totaled $11.9 million for the first quarter, down by $2.2 million, or 15%, from the preceding quarter, but up by $5.8 million, or 96%, from the same period in 2020. First quarter mortgage originations and sales were down compared to the preceding quarter, however, both originations and sales were significantly higher than the first quarter a year ago.
• Wealth management revenues were $9.9 million for the first quarter, up by $689 thousand, or 7%, from the preceding quarter. Wealth management assets under administration ("AUA") amounted to a record $7.0 billion at March 31, 2021.
• Total loans amounted to $4.2 billion, down slightly from the end of the preceding quarter and up by $104 million, or 3%, from a year ago.
• In-market deposits (total deposits less out-of-market wholesale brokered deposits) amounted to a record $4.0 billion at March 31, 2021, up by $227 million, or 6%, from the end of the preceding quarter, and up by $739 million, or 23%, from a year ago.

Net Interest Income

Net interest income was $32.9 million for the first quarter of 2021, up by $628 thousand, or 2%, from the fourth quarter of 2020.  The net interest margin was 2.51% for the first quarter, up by 12 basis points from the preceding quarter.  Both net interest income and the net interest margin benefited from accelerated net deferred fee amortization associated with Paycheck Protection Program ("PPP") loans that were forgiven by the Small Business Association ("SBA").  In the first quarter of 2021, accelerated net deferred fee amortization on PPP loans amounted to approximately $1.2 million, or 9 basis points, compared to $423 thousand, or 3 basis points, in the preceding quarter.  Linked quarter changes included:

• Average interest-earning assets decreased by $47 million, largely due to a decrease of $38 million in average loans. The yield on interest-earning assets for the first quarter was 2.90%, down by 2 basis points from the preceding quarter.
• Average interest-bearing liabilities decreased by $95 million, resulting from a decrease of $183 million in average wholesale funding balances, partially offset by an increase of $88 million in average in-market deposits. The cost of interest-bearing liabilities for the first quarter of 2021 was 0.50%, down by 17 basis points from the preceding quarter, reflecting the impact of lower market interest rates.

Noninterest Income

Noninterest income totaled $26.0 million for the first quarter of 2021, down by $1.8 million, or 6%, from the fourth quarter of 2020.  Included in other noninterest income in first quarter of 2021 was income of $1.0 million associated with a litigation settlement.  As previously disclosed, included in other noninterest income in the fourth quarter of 2020 was a gain of $1.4 million associated with the sale of our limited partnership interest in a low-income housing tax credit investment.  Excluding the impact of the aforementioned items, noninterest income was down by $1.4 million, or 5%.  Linked quarter changes included:

• Mortgage banking revenues totaled $11.9 million for the first quarter of 2021, down by $2.2 million, or 15%, from the fourth quarter of 2020. Mortgage loans sold to the secondary market amounted to $292 million in the first quarter of 2020, down by $26 million, or 8%, from the preceding quarter. Also included in mortgage banking revenues was a decrease in the fair value of mortgage loan commitments as of March 31, 2021.
• Wealth management revenues amounted to $9.9 million in the first quarter of 2021, up by $689 thousand, or 7%, on a linked quarter basis. This included an increase in asset-based revenues of $517 thousand, or 6%, and an increase in transaction-based revenues of $172 thousand, or 123%, from the preceding quarter. The increase in transaction-based revenues was largely due to tax reporting and preparation fees, which are generally concentrated in the first half of the year.
  Wealth management AUA amounted to $7.0 billion at March 31, 2021, up by $182 million, or 3%, from December 31, 2020.  The increase reflected net investment appreciation of $209 million, partially offset by net client asset outflows of $26 million in the first quarter of 2021.  The average balance of AUA for the first quarter of 2021 increased by approximately $298 million, or 5%, from the average balance for the preceding quarter.

Noninterest Expense

Noninterest expense totaled $34.7 million for the first quarter of 2021, up by $604 thousand, or 2%, from the fourth quarter of 2020.  In both the first quarter of 2021 and the fourth quarter of 2020, debt prepayment penalty expense was recognized resulting from paying off higher-yielding FHLB advances.  Debt prepayment penalty expense was $3.3 million in the first quarter of 2021, compared to $1.4 million in the preceding quarter.  Excluding the impact of debt prepayment penalty expense from both periods, noninterest expense was down by $1.3 million, or 4%, from the fourth quarter of 2020.  Linked quarter changes included:

• Salaries and employee benefits expense, our largest noninterest expense, amounted to $21.5 million for the first quarter of 2021, down by $548 thousand, or 2%, from the preceding quarter. The decline reflected lower incentive compensation and higher deferred labor (contra expense), which were partially offset by higher payroll taxes associated with the start of the new calendar year. Deferred labor increased by approximately $560 thousand on a linked quarter basis and was largely due to first quarter PPP loan originations.
• Advertising and promotion expense was down by $418 thousand from the preceding quarter, largely due to timing of such activities.
• Legal, audit and professional fees were down by $417 thousand from the preceding quarter, reflecting a decline in legal expenses.

Income Tax

Income tax expense totaled $5.7 million for the first quarter of 2021, up by $147 thousand from the preceding quarter, reflecting a higher level of pre-tax income.  The effective tax rate for the first quarter of 2021 was 21.7%, compared to 22.9% in the preceding quarter.  Based on current federal and applicable state income statutes, the Corporation currently expects its full-year 2021 effective tax rate to be approximately 22.3%.

Investment Securities

The securities portfolio totaled $948 million at March 31, 2021, up by $54 million, or 6%, from December 31, 2020, reflecting purchases of U.S. government agency and U.S. government-sponsored debt securities, including mortgage-backed securities, which were partially offset by routine pay-downs on mortgage-backed securities and calls of debt securities.  Purchases of debt securities in the first quarter 2021 totaled $208 million, with a weighted average yield of 1.44%.  Securities represented 17% of total assets at March 31, 2021, compared to 16% of total assets at December 31, 2020.

Loans

Total loans amounted to $4.2 billion at March 31, 2021, down by $1 million, from the end of the preceding quarter.  Linked quarter changes included:

• Commercial loans increased by $9 million, or 0.4%, from December 31, 2020. In the first quarter of 2021, commercial loan originations and construction advances totaled $160 million and included $97 million of PPP loan originations. This was largely offset by payoffs and pay-downs totaling $153 million, which included $66 million of PPP loans that were forgiven by the SBA. Commercial line utilization increased modestly by $2 million.
• Residential real estate loans decreased by $10 million, or 1%, from December 31, 2020, reflecting continued elevated payoff and refinancing activity.
• The consumer loan portfolio was essentially unchanged from the balance at December 31, 2020.

Deposits and Borrowings

Total deposits amounted to $4.5 billion at March 31, 2021, up by $171 million, or 4%, from the end of the preceding quarter.  Included in total deposits are out-of-market wholesale brokered time deposits, which decreased by $56 million, or 9%, from December 31, 2020.  Excluding wholesale brokered time deposits, in-market deposits at March 31, 2021 were up by $227 million, or 6%, from the end of the preceding quarter.  This increase reflected a continuation of consumer behavior fostering excess liquidity across the banking industry, as well as temporary increases associated with PPP loan origination funds deposited to customer accounts at Washington Trust.

FHLB advances totaled $467 million at March 31, 2021, down by $127 million from December 31, 2020.

Asset Quality

Nonperforming assets amounted to $13.0 million at March 31, 2021, down by $214 thousand from the end of the preceding quarter.  Total nonaccrual loans amounted to $13.0 million, or 0.31% of total loans, at March 31, 2021, compared to $13.2 million, or 0.31% of total loans, at December 31, 2020.

Total past due loans amounted to $10.9 million, or 0.26% of total loans, at March 31, 2021, compared to $12.4 million, or 0.30% of total loans, at December 31, 2020.

Total troubled debt restructured loans ("TDR") amounted to $14.3 million as of March 31, 2021, down by $1.4 million from December 31, 2020, reflecting payoffs.

Since the beginning of the COVID-19 pandemic, Washington Trust has processed loan payment deferral modifications, or "deferments", on 652 loans totaling $727 million.  The majority of these deferments qualified as eligible loan modifications under Section 4013 of the CARES Act, as amended, and therefore, were not required to be classified as TDRs and were not reported as past due.  As of April 16, 2021, Washington Trust has active deferments remaining on 59 loans totaling $149.7 million, or 4% of the outstanding balance of total loans, excluding PPP loan balances.

The allowance for credit losses ("ACL") on loans amounted to $42.1 million, or 1.00% of total loans, at March 31, 2021, compared to $44.1 million, or 1.05% of total loans, at December 31, 2020.  The ACL on unfunded commitments, included in other liabilities on the Consolidated Balance Sheets, amounted to $2.3 million at March 31, 2021 as compared to $2.4 million, at December 31, 2020.

In the first quarter of 2021, a negative provision for credit losses of $2.0 million was recognized in earnings, compared to a positive provision for credit losses of $1.8 million in the preceding quarter.  The reduction in the provision for credit losses and the ACL reflected our current estimate of forecasted economic conditions and continued stable asset quality metrics.  In the first quarter of 2021, net charge-offs of $18 thousand were recognized, compared to $118 thousand in the preceding quarter.

Capital and Dividends

Total shareholders' equity was $533.6 million at March 31, 2021, down by $596 thousand from December 31, 2020.  The decline reflected a decrease of $12.6 million in the accumulated other comprehensive income component of shareholders' equity largely due to a temporary decline in the fair value of available for sale debt securities, as well as $9.1 million in dividend declarations.  These decreases were partially offset by net income of $20.5 million.

Capital levels at March 31, 2021 exceeded the regulatory minimum levels to be considered well capitalized, with a total risk-based capital ratio of 13.85% at March 31, 2021, compared to 13.51% at December 31, 2020.

Book value per share amounted to $30.83 at March 31, 2021, compared to $30.94 at December 31, 2020.

The Board of Directors declared a quarterly dividend of 52 cents per share for the quarter ended March 31, 2021.  The dividend was paid on April 9, 2021 to shareholders of record on April 1, 2021.

Conference Call

Washington Trust will host a conference call to discuss its first quarter results, business highlights and outlook on Thursday, April 22, 2021 at 8:30 a.m. (Eastern Time).  Individuals may dial in to the call at 1-844-378-6480.  An audio replay of the call will be available, shortly after the conclusion of the call, by dialing 1-877-344-7529 and entering the Replay PIN Number 10154444; the audio replay will be available through May 6, 2021.  Also, a webcast of the call will be posted in the Investor Relations section of Washington Trust's web site, http://ir.washtrust.com, and will be available through June 30, 2021.

Background

Washington Trust Bancorp, Inc. is the parent of The Washington Trust Company.  Founded in 1800, Washington Trust is the oldest community bank in the nation, the largest state-chartered bank headquartered in Rhode Island and one of the Northeast's premier financial services companies.  Washington Trust offers a full range of financial services, including commercial banking, mortgage 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 NASDAQ under the symbol WASH.  Investor information is available on the Corporation's web site at http://ir.washtrust.com.

Forward-Looking Statements

This press release contains statements that are "forward-looking statements".  We may also make 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 our control.  These risks, uncertainties and other factors may cause our actual results, performance or achievements 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: the negative impacts and disruptions of the COVID-19 pandemic and measures taken to contain its spread on our employees, customers, business operations, credit quality, financial position, liquidity and results of operations; changes in consumer behavior due to changing political, business and economic conditions, or legislative or regulatory initiatives; the possibility that future credits losses are higher than currently expected due to changes in economic assumptions or adverse economic developments; volatility in national and international financial markets; 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 or outflows of wealth management assets under administration; decreases in the value of securities and other assets; reductions in loan demand; changes in loan collectability, increases in defaults and charge-off rates; changes in the size and nature of our competition; changes in legislation or regulation and accounting principles, policies and guidelines; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics; reputational risk relating to our participation in the Paycheck Protection Program and other pandemic-related legislative and regulatory initiatives and programs; 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, 2020, as updated by our Quarterly Reports on Form 10-Q and other filings submitted to the SEC, 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 report, and we assume 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.