Washington Trust Reports Fourth Quarter and Full-Year 2019 Earnings

WESTERLY, R.I., Jan. 27, 2020 /PRNewswire/ -- Washington Trust Bancorp, Inc. (Nasdaq: WASH), parent company of The Washington Trust Company, today announced fourth quarter 2019 net income of $15.5 million, or $0.89 per diluted share, compared to net income of $18.8 million, or $1.08 per diluted share, reported for the third quarter of 2019.  Net income for the year ended December 31, 2019 totaled $69.1 million, or $3.96 per diluted share, compared to $68.4 million, or $3.93 per diluted share, reported for the prior year.

"Washington Trust reported record full-year 2019 earnings," stated Edward O. Handy III, Washington Trust Chairman and Chief Executive Officer.  "Our results reflect the strength and stability of our core business model, which enabled us to generate growth and revenues from key business lines.  As we enter our 220th year of service, Washington Trust remains committed to providing enhanced value to those who have contributed to our success over time:  our employees, our customers, our communities and our shareholders."

Selected highlights for the fourth quarter and full-year 2019 include:

• Returns on average equity and average assets for the fourth quarter 2019 were 12.24% and 1.18%, respectively. Full-year returns on average equity and average assets were 14.34% and 1.34%, respectively.
  
  
• Total loans amounted to $3.9 billion at December 31, 2019, up by $115 million, or 3%, from the end of the preceding quarter. Total loans were up by $213 million, or 6%, from December 31, 2018.
  
  
• In-market deposits (total deposits less out-of-market wholesale brokered time deposits) amounted to $3.2 billion at December 31, 2019, up by $59 million, or 2%, from the end of the preceding quarter. Total in-market deposits were up by $167 million, or 5%, from December 31, 2018.
  
  
• In December, Washington Trust declared a quarterly dividend of 51 cents per share. Full-year 2019 dividends declared amounted to $2.00 per share, an increase of 24 cents per share, or 14%, over last year.

Net Interest Income

Net interest income was $32.0 million for the fourth quarter of 2019, down by $984 thousand, or 3%, from the third quarter of 2019.  The net interest margin was 2.61% for the fourth quarter, down by 11 basis points from 2.72% for the preceding quarter.  The declines in net interest income and the net interest margin reflect the impact of the Federal Reserve rate cuts in the second half of 2019.

Significant linked quarter changes included:

• Average interest-earning assets increased by $42 million, primarily due to a $72 million increase in the average balance of loans, partially offset by a $46 million decline in the average balance of the securities portfolio. The yield on interest-earning assets for the fourth quarter was 3.86%, down by 21 basis points from the preceding quarter, reflecting the impact of lower market interest rates.
  
  
• Average interest-bearing liabilities increased by $33 million, with an increase of $90 million in average in-market deposits, partially offset by a decrease of $57 million in average wholesale funding balances (wholesale brokered time deposits and Federal Home Loan Bank advances). The cost of interest-bearing liabilities for the fourth quarter was 1.53%, down by 13 basis points from the preceding quarter, reflecting lower market interest rates.

Noninterest Income

Noninterest income totaled $16.6 million for the fourth quarter of 2019, down by $1.7 million, or 9%, from the third quarter of 2019.  Significant linked quarter changes included:

• Wealth management revenues amounted to $8.9 million for the fourth quarter of 2019, down by $259 thousand, or 3%, on a linked quarter basis, due to a decline in asset-based revenues.

Wealth management assets under administration benefited from financial market appreciation in the fourth quarter of 2019 and totaled $6.2 billion at December 31, 2019, up by $109 million, or 2%, from September 30, 2019. The average balance of assets under administration for the fourth quarter decreased by approximately $209 million, or 3%, from the average balance for the preceding quarter.

Assets under administration have been negatively impacted by approximately $650 million in lost client accounts associated with the departure of two senior counselors at the end of the second quarter of 2019. The impact of these lost accounts was a reduction of revenues of approximately $290 thousand during the third quarter and $775 thousand in the fourth quarter.

• Mortgage banking revenues totaled $3.7 million for the fourth quarter of 2019, down by $1.2 million, or 24%, from the third quarter of 2019. This reflected a linked quarter decline in the mortgage pipeline and corresponding fair value of mortgage loan commitments and loans held for sale as of December 31, 2019. Mortgage loans sold to the secondary market totaled $176 million in the fourth quarter, compared to $185 million in the preceding quarter.
  
  
• Loan related derivative income was $1.1 million for the fourth quarter of 2019, down by $291 thousand, or 21%, reflecting lower volume of commercial borrower interest rate swap transactions.

Noninterest Expenses

Noninterest expenses totaled $28.8 million for the fourth quarter of 2019, up by $1.9 million, or 7%, from the third quarter of 2019.  The linked quarter comparison of noninterest expenses was impacted by the following:

• In the fourth quarter of 2019, a write-down valuation adjustment of $1.0 million on other real estate owned ("OREO") was recognized and included in other noninterest expenses. There were no such adjustments in the third quarter of 2019.
  
  
• FDIC assessment credits of $235 thousand were recognized in the fourth quarter of 2019, compared to credits of $895 thousand in the third quarter of 2019. No additional FDIC assessment credits remain available, as the credits were fully utilized in the fourth quarter of 2019.

Excluding the impact of the aforementioned items, noninterest expenses for the fourth quarter of 2019 increased by $192 thousand, or 1%, on a linked quarter basis, reflecting modest increases across various noninterest expense categories.

Income tax expense totaled $4.3 million for the fourth quarter of 2019, down by $915 thousand from the preceding quarter.  The effective tax rate for the fourth quarter of 2019 was 21.8%, unchanged from the preceding quarter.

Investment Securities

The securities portfolio totaled $899 million at December 31, 2019, up by $12 million, or 1%, from September 30, 2019, reflecting purchases of U.S. government agency and U.S. government-sponsored debt securities, including mortgage-backed securities, that were largely offset by routine pay-downs on mortgage-backed securities and calls of debt securities.  Fourth quarter 2019 purchases were concentrated in December and totaled $123 million, with a weighted average yield of 2.79%.

Securities represented 17% of total assets at both December 31, 2019 and September 30, 2019.

Loans

Total loans amounted to $3.9 billion at December 31, 2019, up by $115 million, or 3%, from the end of the preceding quarter.  Linked quarter changes included:

• Residential real estate loans increased by $71 million, or 5%, from September 30, 2019 and included purchases of $53 million of residential mortgage loans with a weighted average rate of 3.36%. The purchased loans were individually evaluated to our underwriting standards and are predominantly secured by properties in Massachusetts.
  
  
• Commercial loans grew by $49 million, or 2%, with net increases of $30 million in the commercial real estate portfolio and $19 million in the commercial and industrial portfolio. In the fourth quarter, commercial loan originations and construction advances totaled approximately $111 million and were partially offset by payoffs and paydowns.
  
  
• The consumer loan portfolio decreased by $5 million from the balance at September 30, 2019.

From the end of 2018, total loans increased by $213 million, or 6%, with growth of $120 million, or 6%, in commercial loans, $89 million, or 7%, in residential real estate loans and $4 million, or 1%, in consumer loans.

Deposits and Borrowings

Total deposits amounted to $3.5 billion at December 31, 2019, down by $87 million, or 2%, from the end of the preceding quarter and $25 million, or 1%, from the end of 2018.  Included in total deposits are out-of-market wholesale brokered time deposits, which decreased by $146 million from September 30, 2019 and by $192 million from the end of 2018.

Excluding wholesale brokered time deposits, in-market deposits at December 31, 2019 were up by $59 million, or 2%, from the end of the preceding quarter and by $167 million, or 5%, from the end of 2018, reflecting growth in money market and NOW account balances.

Federal Home Loan Bank advances amounted to $1.1 billion at December 31, 2019, up by $185 million from September 30, 2019 and $191 million from the end of 2018.

Asset Quality

Nonperforming assets amounted to $18.5 million at December 31, 2019, down by $527 thousand from the end of the preceding quarter.  This decline included a $3.0 million decrease in OREO and a $2.5 million increase in nonaccrual loans.  The decrease in OREO reflected the sale of a foreclosed commercial property, with a carrying value of $2.0 million at September 30, 2019, at no gain or loss and a $1.0 valuation write-down adjustment on the remaining foreclosed commercial property in OREO at the end of 2019.

Total nonaccrual loans amounted to $17.4 million, or 0.45% of total loans, at December 31, 2019, compared to $14.9 million, or 0.39% of total loans, at September 30, 2019, reflecting a net increase in nonaccrual residential real estate loans.  Total past due loans amounted to $15.7 million, or 0.40% of total loans, at December 31, 2019, compared to $14.4 million, or 0.38% of total loans, at September 30, 2019.

Based on management's assessment of loss exposure, as well as loan loss allocations commensurate with growth and changes in the loan portfolio and credit quality, management concluded that no loan loss provision was necessary in the fourth quarter of 2019.  A loan loss provision of $400 thousand was recognized in the preceding quarter.  In the fourth quarter of 2019, net recoveries of $17 thousand were recognized, compared to net charge-offs of $801 thousand in the preceding quarter.

The allowance for loan losses amounted to $27.0 million, or 0.69% of total loans, at December 31, 2019, compared to $27.0 million, or 0.71% of total loans, at September 30, 2019.

Capital and Dividends

Total shareholders' equity was $503.5 million at December 31, 2019, up by $5.7 million from September 30, 2019.  This increase included net income of $15.5 million, which was partially offset by $8.9 million in dividend declarations and a charge of $2.8 million to the accumulated other comprehensive income component of shareholders' equity associated with the annual remeasurement of pension plan liabilities.  This charge was largely due to a decline in the discount rate used to measure the present value of pension plan liabilities as a result of a reduction in market interest rates in 2019.

Capital levels at December 31, 2019 exceeded the regulatory minimum levels to be considered well capitalized, with a total risk-based capital ratio of 12.94% at December 31, 2019, unchanged from September 30, 2019.  Book value per share amounted to $29.00 at December 31, 2019, compared to $28.71 at September 30, 2019.

The Board of Directors declared a quarterly dividend of 51 cents per share for the quarter ended December 31, 2019.  The dividend was paid on January 10, 2020 to shareholders of record on January 2, 2020.

Conference Call

Washington Trust will host a conference call to discuss its fourth quarter results, business highlights and outlook on Tuesday, January 28, 2020 at 8:30 a.m. (Eastern Time).  Individuals may dial in to the call at 1-888-317-6016.  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 10138161; the audio replay will be available through February 11, 2020.  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 March 31, 2020.

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: weakness in national, regional or international economic conditions or conditions affecting the banking or financial services industries or financial capital markets; 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; 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 our competition; changes in legislation or regulation and accounting principles, policies and guidelines; operational risks including, but not limited to, cybersecurity breaches, fraud and natural disasters; 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, 2018, 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.