Washington Trust Reports Second Quarter 2022 Earnings

WESTERLY, R.I., July 25, 2022 /PRNewswire/ -- Washington Trust Bancorp, Inc. (Nasdaq: WASH), parent company of The Washington Trust Company, today announced second quarter 2022 net income of $20.0 million, or $1.14 per diluted share, compared to net income of $16.5 million, or $0.94 per diluted share, for the first quarter of 2022.

"Washington Trust posted good second quarter results, reflecting the strength of our business model which has provided a consistent and diverse stream of earnings over time," stated Edward O. Handy III, Washington Trust Chairman and Chief Executive Officer.  "Our continued commitment to our customers, who value our trusted advice and personal service, has been key to our continued success during these uncertain economic times."

Selected financial highlights for the second quarter include:

• Returns on average equity and average assets for the second quarter were 16.11% and 1.37%, respectively, compared to 12.04% and 1.14%, respectively, for the preceding quarter.
• Net interest income totaled $37.5 million in the second quarter, up by $2.4 million, or 7%, from the preceding quarter, reflecting the impact of rising market interest rates.
• Asset and credit quality metrics continue to remain strong. In the second quarter a negative $3.0 million provision for credit losses (or a benefit) was recognized. Net recoveries in the second quarter were $10 thousand.
• Total residential real estate loan originations amounted to $350 million in the second quarter, up by $79 million, or 29%, from the preceding quarter.
• Total loans excluding Paycheck Protection Program ("PPP") loans amounted to an all-time high of $4.5 billion, up by $207 million, or 5%, from the end of the preceding quarter and up by $325 million, or 8%, from the balance at June 30, 2021.
• In-market deposits (total deposits less wholesale brokered deposits) amounted to $4.5 billion at June 30, 2022, down by $178 million, or 4%, from the end of the preceding quarter and up by $555 million, or 14%, from the balance at June 30, 2021.

Net Interest Income

Net interest income was $37.5 million for the second quarter of 2022, up by $2.4 million, or 7%, from the first quarter of 2022.  The net interest margin was 2.71% for the second quarter, up 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.  In the second quarter of 2022, accelerated net deferred fee amortization on PPP loans amounted to $323 thousand, or 2 basis points, compared to $819 thousand, or 6 basis points, in the preceding quarter.  Excluding the impact of this item for both periods, the net interest margin was 2.69% in the second quarter of 2022, up by 18 basis points, from 2.51% in the preceding quarter.  Linked quarter changes included:

• Average interest-earning assets increased by $25 million. The yield on interest-earning assets for the second quarter was 3.03%, up by 20 basis points from the preceding quarter. Excluding the impact of accelerated net deferred fee amortization on PPP loans for both periods, the yield on interest-earning assets was 3.01%, up by 24 basis points from the preceding quarter, reflecting the impact of higher market interest rates.
• Average interest-bearing liabilities increased by $69 million, due to an increase of $151 million in average in-market deposits, partially offset by a decrease of $82 million in average wholesale funding balances. The cost of interest-bearing liabilities for the second quarter of 2022 was 0.42%, up by 9 basis points from the preceding quarter.

Noninterest Income

Noninterest income totaled $15.9 million for the second quarter of 2022, down by $1.3 million, or 8%, from the first quarter of 2022.  Linked quarter changes included:

• Wealth management revenues amounted to $10.1 million in the second quarter of 2022, down by $465 thousand, or 4%, on a linked quarter basis.  This included a decrease in asset-based revenues, which declined by $570 thousand, or 6%, from the preceding quarter. This decrease was partially offset by an increase in transaction-based revenues of $105 thousand, or 33%, from the preceding quarter, concentrated in tax servicing fee income.
  
  Wealth management assets under administration ("AUA") amounted to $6.7 billion at June 30, 2022, down by $843 million, or 11%, from March 31, 2022.  The decrease reflected net investment depreciation of $816 million and net client asset outflows of $27 million in the second quarter of 2022.  The average balance of AUA for the second quarter of 2022 decreased by approximately $490 million, or 7%, from the average balance for the preceding quarter.

• Mortgage banking revenues totaled $2.1 million for the second quarter of 2022, down by $1.4 million, or 41%, from the first quarter of 2022, largely reflecting a lower volume of loans sold to the secondary market and a shift to a higher proportion of loans originated for retention in portfolio. Realized gains on sales of loans decreased by $1.4 million, or 42%. Mortgage loans sold to the secondary market amounted to $80 million in the second quarter of 2022, down by $50 million, or 39%, from the preceding quarter.
• Loan related derivative income was $669 thousand in the second quarter of 2022, up by $368 thousand from the preceding quarter, reflecting an increase in commercial borrower interest rate swap transactions.

Noninterest Expense

Noninterest expense totaled $31.1 million for the second quarter of 2022, down by $142 thousand, or 0.5%, from the first quarter of 2022.  Linked quarter changes included:

• Salaries and employee benefits expense, the largest component of noninterest expense, amounted to $20.4 million for the second quarter of 2022, down by $621 thousand, or 3%, from the preceding quarter, reflecting lower payroll taxes and a reduction in share-based compensation expense. In addition, the benefit of higher deferred labor (a contra expense) largely associated with the higher proportion of residential real estate loan originations for retention in portfolio, was partially offset by volume-related increases in mortgage originator compensation expense.
• Advertising and promotion expense was up by $373 thousand, or 106%, from the preceding quarter, largely due to the timing of such activities.

Income Tax

Income tax expense totaled $5.3 million for the second quarter of 2022, up by $885 thousand from the preceding quarter, largely due to a higher level of pre-tax income.  The effective tax rate for the second quarter of 2022 was 21.1%, compared to 21.3% in the preceding quarter.  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 June 30, 2022, up by $12 million, or 1%, from March 31, 2022, reflecting purchases of U.S. government agency and U.S. government-sponsored debt securities, including mortgage-backed securities, which were partially offset by a temporary decline in fair value of available for sale securities and routine pay-downs on mortgage-backed securities.  Purchases of debt securities in the second quarter 2022 totaled $92 million, with a weighted average yield of 3.88%.  The securities portfolio represented 17% of total assets at both June 30, 2022 and March 31, 2022.

Loans

Total loans amounted to $4.5 billion at June 30, 2022, up by $196 million, or 5%, from the end of the preceding quarter.  Linked quarter changes included:

• Commercial loans decreased by $14 million, or 1%, from March 31, 2022, which included a net reduction in PPP loans of $11 million.  Excluding PPP loans, commercial loans decreased by $3 million, or 0.1%, from March 31, 2022, reflecting payoffs and pay-downs of approximately $133 million, partially offset by originations and advances of approximately $130 million.
  
  As of June 30, 2022, the carrying value of PPP loans was $2 million and included net unamortized loan origination fee balances of $83 thousand.

• Residential real estate loans increased by $188 million, or 11%, from March 31, 2022. In the second quarter of 2022, residential real estate loans originated for portfolio amounted to $264 million, an increase of $99 million, or 60%, from the preceding quarter.
• The consumer loan portfolio increased by $21 million, or 8%, from the balance at March 31, 2022, reflecting growth in home equity lines and loans.

Deposits and Borrowings

At June 30, 2022, in-market deposits, which exclude wholesale brokered deposits, amounted to $4.5 billion, down by $178 million, or 4%, from the end of the preceding quarter, concentrated in institutional money market accounts.  Wholesale brokered deposits amounted to $459 million, up by $57 million, or 14%, from March 31, 2022.  Total deposits amounted to $5.0 billion at June 30, 2022, down by $121 million, or 2%, from the end of the preceding quarter.

FHLB advances totaled $328 million at June 30, 2022, up by $273 million, or 496%, from March 31, 2022, as higher levels of wholesale funding were utilized to fund balance sheet growth.

Asset Quality

Total nonaccrual loans amounted to $12.4 million, or 0.28% of total loans, at June 30, 2022, compared to $12.6 million, or 0.29% of total loans, at March 31, 2022.  Total past due loans amounted to $8.6 million, or 0.19% of total loans, at June 30, 2022, compared to $7.0 million, or 0.16% of total loans, at March 31, 2022.

The allowance for credit losses ("ACL") on loans amounted to $36.3 million, or 0.81% of total loans, at June 30, 2022, compared to $39.2 million, or 0.92% of total loans, at March 31, 2022.  The ACL on unfunded commitments, included in other liabilities on the Consolidated Balance Sheets, amounted to $2.2 million at June 30, 2022, compared to $2.3 million at March 31, 2022.

There was a negative $3.0 million provision for credit losses (or a benefit) recognized in the second quarter of 2022, compared to a positive $100 thousand provision for credit losses (or a charge) recognized in the preceding quarter.  The negative provision in the second quarter of 2022 reflected a continuation of low loss rates, strong asset and credit quality metrics, as well as our current estimate of forecasted economic conditions.  In the second quarter of 2022, net recoveries of $10 thousand were recognized, compared to net recoveries of $148 thousand in the preceding quarter.

Capital and Dividends

Total shareholders' equity was $476.6 million at June 30, 2022, down by $36.6 million, or 7%, from March 31, 2022.  The decline was largely due to a decrease of $38.6 million in the accumulated other comprehensive income component of shareholders' equity, reflecting a temporary decrease in the fair value of available for sale securities.  In addition, the change in shareholders' equity also included $9.4 million in dividend declarations and a net increase in treasury stock of $7.3 million, partially offset by net income of $20.0 million.

In the second quarter of 2022, Washington Trust repurchased 175,408 shares, at an average price of $48.93 and a total cost of  $8.6 million, under its stock repurchase program.

Capital levels at June 30, 2022 exceeded the regulatory minimum levels to be considered well capitalized, with a total risk-based capital ratio of 13.51% at June 30, 2022, compared to 14.15% at March 31, 2022.  Book value per share was $27.73 at June 30, 2022, compared to $29.61 at March 31, 2022.

The Board of Directors declared a quarterly dividend of 54 cents per share for the quarter ended June 30, 2022.  The dividend was paid on July 8, 2022 to shareholders of record on July 1, 2022.

Conference Call

Washington Trust will host a conference call to discuss its second quarter results, business highlights and outlook on Tuesday, July 26, 2022 at 8:30 a.m. (Eastern Time).  Individuals may dial in to the call at 1-844-200-6205 and enter Access Code 790165.  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 914070.  The audio replay will be available through August 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 September 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 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;
• ongoing 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 AUA;
• 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.