Washington Trust Reports Second Quarter 2021 Earnings

WESTERLY, R.I., July 21, 2021 /PRNewswire/ -- Washington Trust Bancorp, Inc. (Nasdaq: WASH), parent company of The Washington Trust Company, today announced second quarter 2021 net income of $17.5 million, or $1.00 per diluted share, compared to net income of $20.5 million, or $1.17 per diluted share, for the first quarter of 2021.

"Washington Trust reported solid second quarter results, with strong performances across key business lines," stated Edward O. Handy III, Chairman and Chief Executive Officer.  "Our wealth management division posted a record $7.4 billion in assets under administration and generated an all-time high $10.4 million in quarterly revenues.  As the economic recovery continues, we have seen a revival of commercial lending activity."

Selected financial highlights for the second quarter of 2021 include:

• Returns on average equity and average assets for the second quarter were 12.92% and 1.20%, respectively, compared to 15.55% and 1.45%, respectively, in the preceding quarter.
• There was no provision for credit losses in the second quarter, compared to a negative $2.0 million in the preceding quarter.
• Wealth management revenues were $10.4 million for the second quarter, up by $533 thousand, or 5%, from the preceding quarter, mainly due to growth in asset-based revenues. Wealth management assets under administration ("AUA") amounted to a record $7.4 billion at June 30, 2021.
• Residential real estate loan origination volume was strong and totaled $489.4 million for the second quarter, up by $48.3 million, or 11%, from the preceding quarter and up by $63.2 million, or 15%, from the same period a year ago. While sales volume remained strong, mortgage banking revenues declined on a linked quarter basis reflecting lower sales yields in the secondary market.
• Total loans amounted to $4.3 billion, up by $105 million, or 3%, from the end of the preceding quarter and up by $12 million, or 0.3%, from a year ago. Total loans excluding Paycheck Protection Program ("PPP") loans amounted to $4.2 billion, up by $187 million, or 5%, from the end of the preceding quarter and up by $77 million, or 2%, from a year ago.
• In-market deposits (total deposits less out-of-market wholesale brokered deposits) amounted to $4.0 billion at June 30, 2021, down by $20 million, or 1%, from the end of the preceding quarter, and up by $421 million, or 12%, from a year ago.

Net Interest Income
Net interest income was $34.8 million for the second quarter of 2021, up by $1.9 million, or 6%, from the first quarter of 2021.  The net interest margin was 2.55% for the second quarter, up by 4 basis points from the preceding quarter.  Both net interest income and the net interest margin benefited from commercial loan prepayment fee income.  Commercial loan prepayment fee income amounted to $717 thousand, or 5 basis points, in the second quarter of 2021, compared to $217 thousand, or 2 basis points, in the preceding quarter.  Linked quarter changes included:

• Average interest-earning assets increased by $140 million, with an increase of $114 million in average investment securities and an increase in average loans of $42 million. The yield on interest-earning assets for the second quarter was 2.85%, down by 5 basis points from the preceding quarter. Excluding the impact of commercial loan prepayment fee income for both periods, the yield on interest-earning assets for the second quarter was 2.79%, down by 9 basis points from 2.88% in the preceding quarter, mainly due to a lower yield on the average balances of investment securities and residential real estate loans.

• Average interest-bearing liabilities increased by $111 million, with an increase of $113 million in average in-market deposits, partially offset by a decrease of $3 million in average wholesale funding balances. The cost of interest-bearing liabilities for the second quarter of 2021 was 0.38%, down by 12 basis points from the preceding quarter, reflecting the impact of lower market interest rates.

Noninterest Income
Noninterest income totaled $20.6 million for the second quarter of 2021, down by $5.4 million, or 21%, from the first quarter of 2021.  As previously disclosed, included in other noninterest income in the first quarter of 2021 was income of $1.0 million associated with a settlement.  Excluding the impact of the aforementioned item, noninterest income was down by $4.4 million, or 18%.  Linked quarter changes included:

• Wealth management revenues amounted to $10.4 million in the second quarter of 2021, up by $533 thousand, or 5%, on a linked quarter basis. This included an increase in asset-based revenues of $408 thousand, or 4%, and an increase in transaction-based revenues of $125 thousand, or 40%, from the preceding quarter. The linked quarter increase in transaction-based revenues was largely due to higher tax reporting and preparation fee income.
  
  Wealth management AUA amounted to $7.4 billion at June 30, 2021, up by $392 million, or 6%, from March 31, 2021. The increase reflected net investment appreciation of $368 million and net client asset inflows of $24 million in the second quarter of 2021. The average balance of AUA for the second quarter of 2021 increased by approximately $359 million, or 5%, from the average balance for the preceding quarter.

• Mortgage banking revenues totaled $6.0 million for the second quarter of 2021, down by $5.9 million, or 50%, from the first quarter of 2021, mainly due to a lower sales yield on loans sold to the secondary market. Mortgage loans sold to the secondary market amounted to $291 million in the second quarter of 2021, down by $1 million, or 1%, from the preceding quarter. Also included in mortgage banking revenues was a decrease in the fair value of mortgage loan commitments as of June 30, 2021.

• Loan related derivative income was $1.2 million in the second quarter of 2021, up by $708 thousand from the preceding quarter, reflecting a higher volume of commercial borrower transactions.

Noninterest Expense
Noninterest expense totaled $33.0 million for the second quarter of 2021, down by $1.7 million, or 5%, from the first quarter of 2021.  Debt prepayment penalty expense recognized on the prepayment of higher-yielding FHLB advances amounted to $895 thousand in the second quarter of 2021 and $3.3 million in the first quarter of 2021.  Excluding the impact of debt prepayment penalty expense from both periods, noninterest expense was up by $739 thousand, or 2%, from the first quarter of 2021.  Linked quarter changes included:

• Salaries and employee benefits expense, our largest noninterest expense, amounted to $22.1 million for the second quarter of 2021, up by $555 thousand, or 3%, from the preceding quarter largely due to increases in performance-based compensation accruals.

• Advertising and promotion expense was up by $338 thousand from the preceding quarter, largely due to timing of such activities.

Income Tax
Income tax expense totaled $4.9 million for the second quarter of 2021, down by $786 thousand from the preceding quarter, reflecting a lower level of pre-tax income.  The effective tax rate for the second quarter of 2021 was 21.8%, compared to 21.7% 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 22.0%.

Investment Securities
The securities portfolio totaled $1.1 billion at June 30, 2021, up by $104 million, or 11%, from March 31, 2021, 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.  Purchases of debt securities in the second quarter 2021 totaled $194 million, with a weighted average yield of 1.91%.  Securities represented 18% of total assets at June 30, 2021, compared to 17% of total assets at March 31, 2021.

Loans
Total loans amounted to $4.3 billion at June 30, 2021, up by $105 million, from the end of the preceding quarter.  Linked quarter changes included:

• Commercial loans decreased by $25 million, or 1.0%, from March 31, 2021, which included a net reduction in PPP loans of $82 million. Excluding PPP loans, commercial loans increased by $57 million, or 3%, from March 31, 2021, reflecting commercial loan originations and construction advances totaling $162 million, partially offset by payoffs and pay-downs of $103 million.

• Residential real estate loans increased by $133 million, or 9%, from March 31, 2021. The increase reflects a higher proportion of loans originated for portfolio, as well as purchases of $39 million of loans with a weighted average rate of 2.74%. The purchased loans were individually evaluated to our underwriting standards and are predominantly secured by properties in Massachusetts.

• The consumer loan portfolio decreased by $2.8 million, or 1% from the balance at March 31, 2021.

Deposits and Borrowings
Total deposits amounted to $4.7 billion at June 30, 2021, up by $177 million, or 4%, from the end of the preceding quarter.  Included in total deposits are out-of-market wholesale brokered time deposits, which increased by $197 million, or 37%, from March 31, 2021.  Excluding wholesale brokered time deposits, in-market deposits at June 30, 2021 were down by $20 million, or 1%, from the end of the preceding quarter.  This decrease reflected seasonal outflows of various institutional and governmental depositors based on their underlying business cycles, as well as outflows associated with utilization of PPP loan funds for customers' business needs.

FHLB advances totaled $409 million at June 30, 2021, down by $58 million from March 31, 2021.

Asset Quality
Nonperforming assets amounted to $10.5 million at June 30, 2021, down by $2.5 million from the end of the preceding quarter.  Total nonaccrual loans amounted to $10.5 million, or 0.24% of total loans, at June 30, 2021, compared to $13.0 million, or 0.31% of total loans, at March 31, 2021.

Total past due loans amounted to $8.5 million, or 0.20% of total loans, at June 30, 2021, compared to $10.9 million, or 0.26% of total loans, at March 31, 2021.

Total troubled debt restructured loans ("TDR") amounted to $10.8 million as of June 30, 2021, down by $3.5 million from March 31, 2021, reflecting payoffs.

Washington Trust has processed loan payment deferral modifications, or "deferments", on 654 loans totaling $728 million since the beginning of the second quarter of 2020, in response to the COVID-19 pandemic.  The majority of these deferments qualified as eligible loan modifications under Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), as amended, and therefore, were not required to be classified as TDRs and were not reported as past due.  As of June 30, 2021, active deferments remain on 22 loans totaling $93.4 million, or 2% of the outstanding balance of total loans excluding PPP loan balances.  This is down from active deferments on 88 loans totaling $191.4 million, or 5% of the outstanding balance of total loans excluding PPP loan balances, as of March 31, 2021.

The allowance for credit losses ("ACL") on loans amounted to $41.9 million, or 0.97% of total loans, at June 30, 2021, compared to $42.1 million, or 1.00% of total loans, at March 31, 2021.  The ACL on unfunded commitments, included in other liabilities on the Consolidated Balance Sheets, amounted to $2.3 million at June 30, 2021, unchanged from the balances at March 31, 2021.

In the second quarter of 2021, no provision for credit losses was recognized in earnings, compared to a provision for credit losses of negative $2.0 million in the preceding quarter.  The provision for credit losses and the related ACL reflected our current estimate of forecasted economic conditions and continued stable asset quality metrics.  In the second quarter of 2021, net charge-offs of $258 thousand were recognized, compared to $18 thousand in the preceding quarter.

Capital and Dividends
Total shareholders' equity was $547.9 million at June 30, 2021, up by $14.3 million from March 31, 2021.  This increase included net income of $17.5 million, as well as an increase of $4.9 million in the accumulated other comprehensive income component of shareholders' equity largely due to a temporary increase in the fair value of available for sale debt securities, partially offset by $9.1 million in dividend declarations.

Capital levels at June 30, 2021 exceeded the regulatory minimum levels to be considered well capitalized, with a total risk-based capital ratio of 13.65% at June 30, 2021, compared to 13.85% at March 31, 2021.

Book value per share amounted to $31.63 at June 30, 2021, compared to $30.83 at March 31, 2021.

The Board of Directors declared a quarterly dividend of 52 cents per share for the quarter ended June 30, 2021.  The dividend was paid on July 9, 2021 to shareholders of record on July 1, 2021.

Conference Call
Washington Trust will host a conference call to discuss its second quarter results, business highlights and outlook on Thursday, July 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 10158379; the audio replay will be available through August 5, 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 September 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.