Washington Trust Reports First Quarter 2022 Earnings

WESTERLY, R.I., April 25, 2022 /PRNewswire/ -- Washington Trust Bancorp, Inc. (Nasdaq: WASH), parent company of The Washington Trust Company, today announced first quarter 2022 net income of $16.5 million, or $0.94 per diluted share, compared to net income of $20.2 million, or $1.15 per diluted share, for the fourth quarter of 2021.

"Washington Trust posted solid first quarter results and, while overall earnings were impacted by market volatility and economic uncertainty, our balance sheet, capital position, and credit quality remain strong," stated Edward O. Handy III, Washington Trust Chairman and Chief Executive Officer.  "We successfully met the challenges posed by the COVID-19 pandemic and believe our diversified business model positions us well in a rising rate environment."

Selected financial highlights for the first quarter include:

• Returns on average equity and average assets for the first quarter were 12.04% and 1.14%, respectively, compared to 14.34% and 1.36%, respectively, for the preceding quarter.
  
  
• Asset and credit quality metrics remained strong. In the first quarter a modest $100 thousand provision for credit losses (or charge) was recognized, following a $2.8 million release of credit loss reserves in the preceding quarter. Net recoveries in the first quarter were $148 thousand.
  
  
• Wealth management revenues reached a quarterly high of $10.5 million. New business activity was strong in the first quarter.
  
  
• Total loans excluding Paycheck Protection Program ("PPP") loans amounted to an all-time high $4.3 billion, up by $36 million, or 1%, from the end of the preceding quarter.
  
  
• In-market deposits (total deposits less out-of-market wholesale brokered deposits) amounted to a record $4.7 billion at March 31, 2022, up by $261 million, or 6%, from the end of the preceding quarter.

Net Interest Income

Net interest income was $35.1 million for the first quarter of 2022, down by $2.6 million, or 7%, from the fourth quarter of 2021.  The net interest margin was 2.57% for the first quarter, down by 14 basis points from the preceding quarter.  Net interest income and the net interest margin were impacted by accelerated net deferred fee amortization associated with PPP loans that were forgiven by the Small Business Administration, as well as commercial loan prepayment fee income.  In the first quarter of 2022, accelerated net deferred fee amortization on PPP loans amounted to $819 thousand, or 6 basis points, compared to $1.2 million, or 9 basis points, in the preceding quarter.  Commercial loan prepayment fee income amounted to $76 thousand, or 0 basis points, in the first quarter of 2022, compared to $2.2 million, or 16 basis points, in the preceding quarter.  Excluding the impact of these items for both periods, the net interest margin was 2.51% in the first quarter of 2022, up by 5 basis points, from 2.46% in the preceding quarter.  Linked quarter changes included:

• Average interest-earning assets increased by $7 million. The yield on interest-earning assets for the first quarter was 2.83%, down by 14 basis points from the preceding quarter. Excluding the impact of accelerated net deferred fee amortization on PPP loans and commercial loan prepayment fee income for both periods, the yield on interest-earning assets was 2.76%, up by 4 basis points from the preceding quarter, reflecting the impact of higher market interest rates.
  
  
• Average interest-bearing liabilities increased by $40 million, due to an increase of $216 million in average in-market deposits, partially offset by a decrease of $176 million in average wholesale funding balances. The cost of interest-bearing liabilities for the first quarter of 2022 was 0.33%, down by 1 basis point from the preceding quarter.

Noninterest Income

Noninterest income totaled $17.2 million for the first quarter of 2022, down by $3.1 million, or 16%, from the fourth quarter of 2021.  Linked quarter changes included:

• Wealth management revenues amounted to $10.5 million in the first quarter of 2022, up by $27 thousand, or 0.3%, on a linked quarter basis. This included an increase in transaction-based revenues of $233 thousand, or 268%, from the preceding quarter, reflecting seasonal tax reporting and preparation fees that are generally concentrated in the first half of the calendar year. This increase was partially offset by a decrease in asset-based revenues, which declined by $206 thousand, or 2%, from the preceding quarter.
  
  Wealth management AUA amounted to $7.5 billion at March 31, 2022, down by $291 million, or 4%, from December 31, 2021. The decrease reflected net investment depreciation of $389 million, partially offset by net client asset inflows of $97 million in the first quarter of 2022. The average balance of AUA for the first quarter of 2022 decreased by approximately $83 million, or 1%, from the average balance for the preceding quarter.
  
  
• Mortgage banking revenues totaled $3.5 million for the first quarter of 2022, down by $831 thousand, or 19%, from the fourth quarter of 2021, reflecting a lower volume of loans sold to the secondary market and a lower sales yield, partially offset by changes in the fair value of mortgage loan commitments. Realized gains on sales of loans decreased by $2.4 million, or 42%. Mortgage loans sold to the secondary market amounted to $130 million in the first quarter of 2021, down by $67 million, or 34%, from the preceding quarter.
  
  
• Loan related derivative income was $301 thousand in the first quarter of 2022, down by $1.7 million from the preceding quarter, reflecting a lower volume of commercial borrower interest rate swap transactions.
  
  
• Income from bank-owned life insurance totaled $601 thousand in the first quarter of 2022, down by $543 thousand, or 47%, from the preceding quarter. This decline was due to the recognition of $526 thousand in the fourth quarter of 2021 of non-taxable income associated with the receipt of life insurance proceeds.

Noninterest Expense

Noninterest expense totaled $31.2 million for the first quarter of 2022, down by $4.0 million, or 11%, from the fourth quarter of 2021.  Included in noninterest expense for the fourth quarter of 2021 was debt prepayment penalty expense of $2.7 million, resulting from prepaying higher-yielding FHLB advances.  There was no debt prepayment penalty expense recognized in the first quarter of 2022.  Excluding the impact of debt prepayment penalty expense, noninterest expense was down by $1.3 million, or 4%, from the fourth quarter of 2021.  Linked quarter changes included:

• Salaries and employee benefits expense, the largest component of noninterest expense, amounted to $21.0 million for the first quarter of 2022, down by $522 thousand, or 2%, from the preceding quarter, reflecting volume-related decreases in mortgage originator compensation expense and lower performance-based compensation accruals, which were partially offset by higher payroll taxes associated with the start of a new calendar year.
  
  
• Outsourced services expense decreased by $343 thousand, or 10%, largely reflecting a lower volume of commercial borrower loan related derivative transactions.

Income Tax

Income tax expense totaled $4.4 million for the first quarter of 2022, down by $1.0 million from the preceding quarter, largely due to a lower level of pre-tax income.  The effective tax rate for both the first quarter of 2022 and the fourth quarter of 2021 was 21.3%.  Based on current federal and applicable state income statutes, the Corporation currently expects its full-year 2022 effective tax rate to be approximately 21.5%.

Investment Securities

The securities portfolio totaled $1.0 billion at March 31, 2022, down by $35 million, or 3%, from December 31, 2021, reflecting a temporary decline in fair value of available for sale securities and routine pay-downs on mortgage-backed securities.  These decreases were partially offset by purchases of U.S. government agency and U.S. government-sponsored debt securities, including mortgage-backed securities.  Purchases of debt securities in the first quarter 2022 totaled $75 million, with a weighted average yield of 2.41%.  Securities represented 17% of total assets at March 31, 2022, compared to 18% of total assets at December 31, 2021.

Loans

Total loans amounted to $4.3 billion at March 31, 2022, up by $11 million, or 0.3%, from the end of the preceding quarter.  Linked quarter changes included:

• Commercial loans decreased by $37 million, or 2%, from December 31, 2021, which included a net reduction in PPP loans of $25 million. Excluding PPP loans, commercial loans decreased by $12 million, or 1%, from December 31, 2021, reflecting payoffs and pay-downs of approximately $122 million, partially offset by commercial loan originations and advances of approximately $110 million.
  
  As of March 31, 2022, the carrying value of PPP loans was $13 million and included net unamortized loan origination fee balances of $425 thousand.
  
  
• Residential real estate loans increased by $51 million, or 3%, from December 31, 2021. In the first quarter of 2022, residential real estate loans originated for portfolio amounted to $164 million.
  
  
• The consumer loan portfolio decreased by $3 million, or 1%, from the balance at December 31, 2021.

Deposits and Borrowings

At March 31, 2022, in-market deposits, which exclude wholesale brokered time deposits, amounted to $4.7 billion, up by $261 million, or 6%, from the end of the preceding quarter, concentrated in money market accounts.  Wholesale brokered time deposits amounted to $402 million, down by $113 million, or 22%, from December 31, 2021.  Total deposits amounted to $5.1 billion at March 31, 2022, up by $148 million, or 3%, from the end of the preceding quarter.

FHLB advances totaled $55 million at March 31, 2022, down by $90 million, or 62%, from December 31, 2021, as lower levels of wholesale funding were needed given the in-market deposits increase.

Asset Quality

Total nonaccrual loans amounted to $12.6 million, or 0.29% of total loans, at March 31, 2022, compared to $14.2 million, or 0.33% of total loans, at December 31, 2021.

Total past due loans amounted to $7.0 million, or 0.16% of total loans, at March 31, 2022, compared to $10.4 million, or 0.24% of total loans, at December 31, 2021.

As of March 31, 2022, there were no active loan payment deferral modifications made in response to the COVID-19 pandemic.

The allowance for credit losses ("ACL") on loans amounted to $39.2 million, or 0.92% of total loans, at March 31, 2022, compared to $39.1 million, or 0.91% of total loans, at December 31, 2021.  The ACL on unfunded commitments, included in other liabilities on the Consolidated Balance Sheets, amounted to $2.3 million at March 31, 2022, compared to $2.2 million at December 31, 2021.

There was a positive $100 thousand provision for credit losses (or a charge) recognized in the first quarter of 2022, compared to a negative $2.8 million provision for credit losses (or a benefit) recognized in the preceding quarter.  In the first quarter of 2022, the provision related to an increase in the ACL on unfunded commitments.  There was no provision for credit losses on loans recognized in the first quarter of 2022, reflecting continued low loss rates, strong asset and credit quality metrics, as well as our current estimate of forecasted economic conditions.  In the first quarter of 2022, net recoveries of $148 thousand were recognized, compared to net recoveries of $27 thousand in the preceding quarter.

Capital and Dividends

Total shareholders' equity was $513.2 million at March 31, 2022, down by $51.6 million, or 9%, from December 31, 2021.  The decline reflected a decrease of $59.5 million in the accumulated other comprehensive income component of shareholders' equity, largely due to a temporary decrease in the fair value of available for sale securities, as well as $9.5 million in dividend declarations.  These decreases were partially offset by net income of $16.5 million.

Capital levels at March 31, 2022 exceeded the regulatory minimum levels to be considered well capitalized, with a total risk-based capital ratio of 14.15% at March 31, 2022, compared to 14.01% at December 31, 2021.

Book value per share was $29.61 at March 31, 2022, compared to $32.59 at December 31, 2021.

The Board of Directors declared a quarterly dividend of 54 cents per share for the quarter ended March 31, 2022.  The dividend was paid on April 8, 2022 to shareholders of record on April 1, 2022.

Conference Call

Washington Trust will host a conference call to discuss its first quarter results, business highlights and outlook on Monday, April 25, 2022 at 10:00 a.m. (Eastern Time).  Individuals may dial in to the call at 1-844-200-6205 and enter Access Code 058066.  An audio replay of the call will be available, shortly after the conclusion of the call, by dialing 1-866-813-9403 and entering the Replay Access Code 958451.  The audio replay will be available through May 9, 2022.  Also, a webcast of the call will be posted in the Investor Relations section of Washington Trust's website, https://ir.washtrust.com, and will be available through June 30, 2022.

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 website at https://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 U.S. Securities and Exchange Commission ("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:

• ongoing disruptions in our business and operations, and changes in consumer behavior due to the ongoing COVID-19 pandemic;
• changes in political, business and economic conditions, including inflation, or legislative or regulatory initiatives;
• the possibility that future credit losses are higher than currently expected due to changes in economic assumptions or adverse economic developments;
• volatility in national and international financial markets;
• interest rate changes or 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;
• changes in loan demand and 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, changes in information technology, cybersecurity incidents, fraud, natural disasters, war, terrorism, civil unrest and future pandemics;
• reputational risks; 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, 2021, 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.

The following table presents average balance and interest rate information.  Tax-exempt income is converted to a fully taxable equivalent ("FTE") basis using the statutory federal income tax rate adjusted for applicable state income taxes net of the related federal tax benefit.  Unrealized gains (losses) on available for sale securities and changes in fair value on mortgage loans held for sale are excluded from the average balance and yield calculations.  Nonaccrual loans, as well as interest recognized on these loans, are included in amounts presented for loans.

Interest income amounts presented in the preceding table include the following adjustments for taxable equivalency: