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Press Release

Washington Trust Reports Third Quarter 2018 Earnings

Company Release - 10/22/2018 4:30 PM ET

WESTERLY, R.I., Oct. 22, 2018 (GLOBE NEWSWIRE) -- Washington Trust Bancorp, Inc. (Nasdaq:WASH), parent company of The Washington Trust Company, today announced third quarter 2018 net income of $17.5 million, or $1.01 per diluted share, compared to net income of $17.7 million, or $1.01 per diluted share, reported for the second quarter of 2018.

“Washington Trust’s third quarter results reflect another solid operating performance, led by good deposit growth, healthy loan production, and increased wealth management asset generation,” stated Edward O. Handy III, Washington Trust Chairman and Chief Executive Officer.

Selected highlights for third quarter 2018 include:

  • Profitability ratios remained strong, with returns on average equity and average assets of 16.26% and 1.47%, respectively.

  • Total loans were up by $66 million, or 2%, from the end of the prior quarter and up by $233 million, or 7%, from a year ago.

  • Total deposits were up by $93 million, or 3%, from the end of the preceding quarter and up by $257 million, or 8%, from a year ago.

  • In September, Washington Trust declared a quarterly dividend of 43 cents per share.  Year-to-date dividends declared amounted to $1.29 per share, an increase of 14 cents per share, or 12%, from the same period a year ago.

Net Interest Income
Net interest income was $33.4 million for the third quarter of 2018, up by $338 thousand, or 1%, from the second quarter of 2018.  Income associated with loan payoffs and prepayment penalties in the third quarter of 2018 was $173 thousand, compared to $483 thousand in the prior quarter.  The net interest margin was 2.99% for the third quarter, down by 6 basis points from the preceding quarter.  Excluding income associated with loan payoffs and prepayment penalties, the net interest margin was 2.98% for the third quarter, down by 3 basis points from the preceding quarter.

Significant linked quarter changes included:

  • Average interest-earning assets increased by $86 million, largely due to loan growth.  The yield on interest-earning assets for the third quarter was 4.03%, up by 5 basis points from the preceding quarter.  Excluding the impact of income associated with loan payoffs and prepayment penalties, the yield on interest-earning assets was 4.02%, up by 8 basis points from the preceding quarter.  The yield benefited from increased market rates of interest.

  • Average non-interest bearing demand deposits increased by $38 million, largely due to the recapture of second quarter seasonal outflows.  Average interest-bearing liabilities increased by $44 million, reflecting an increase of $57 million in average in-market deposits, partially offset by a decline of $13 million in average wholesale funding balances (wholesale brokered time deposits and Federal Home Loan Bank advances).  The cost of interest-bearing liabilities for the third quarter was 1.28%, up by 14 basis points from the preceding quarter, largely due to higher rates paid on promotional time certificates of deposit and interest-bearing demand deposits.  The increase in the rate paid on interest-bearing demand deposits was primarily attributable to a program implemented in June 2018 that transitioned wealth management client assets, previously held in outside accounts, into insured deposits on Washington Trust's balance sheet.

Noninterest Income
Noninterest income totaled $15.2 million for the third quarter of 2018, down by $778 thousand, or 5%, from the second quarter of 2018.  Significant linked quarter changes included:

  • Wealth management revenues were $9.5 million for the third quarter of 2018, down by $148 thousand, or 2%, on a linked quarter basis.  This included a decrease of $334 thousand in transaction-based revenues, partially offset by an increase of $186 thousand, or 2%, in asset-based revenues.  The linked quarter decrease in transaction-based revenues was largely attributable to tax preparation fee revenue, which is generally recognized in the second quarter.

    Wealth management assets under administration were $6.5 billion at September 30, 2018, up by $242 million, or 4%, from the balance at June 30, 2018, with $232 million of net investment appreciation and income and $10 million of net client inflows.
  • Mortgage banking revenues were $2.6 million for the third quarter of 2018, down by $317 thousand, or 11%, from the preceding quarter.  While third quarter results benefited from relatively higher volume of loans sold and sales yield, this was offset by a decrease in fair value adjustments on mortgage loan commitments and loans held for sale.  The decrease in fair value adjustments reflected a decline in the mortgage pipeline and corresponding loan commitment balances as of September 30, 2018.

  • Loan related derivative income was $278 thousand for the third quarter of 2018, down by $390 thousand from the preceding quarter, due to lower transaction volume of commercial borrower loan related derivatives.

Noninterest Expenses
Noninterest expenses totaled $26.1 million for the third quarter of 2018, down by $226 thousand, or 1%, from the second quarter of 2018.  The linked quarter comparison of noninterest expenses was impacted by the following:

  • Included in other expenses in the second quarter of 2018 were software system implementation expenses of $114 thousand primarily related to the conversion of our wealth management accounting system, which was completed in April 2018.

  • In the third quarter of 2018, a one-time third-party vendor credit of $300 thousand was recognized as a reduction to outsourced services expense in the third quarter.

Excluding the impact of the aforementioned items, noninterest expenses for the third quarter of 2018 were up by $188 thousand or 1%, largely due to an increase in foreclosed property costs.

Income tax expense totaled $4.7 million for the third quarter of 2018, essentially unchanged from the preceding quarter.  The effective tax rate for the third quarter of 2018 was 21.3%, compared to 21.2% for the preceding quarter.

Investment Securities
The securities portfolio totaled $824 million at September 30, 2018, up by $35 million from the balance at June 30, 2018.  The increase reflected purchases of debt securities in the third quarter totaling $65 million, with a weighted average yield of 3.46%. These purchases were partially offset by routine principal pay-downs on mortgage-backed securities and a temporary decline in the fair value of available for sale securities.  Investment securities represented 17% of total assets at September 30, 2018.

Loans
Total loans amounted to $3.6 billion at September 30, 2018, up by $66 million, or 2%, from the end of the second quarter.  Total commercial loans increased by $47 million, or 3%, reflecting an increase of $25 million in the commercial and industrial ("C&I") portfolio and an increase of $22 million in the commercial real estate portfolio.  The residential real estate loan portfolio increased by $22 million, or 2%, from the balance at June 30, 2018, while total consumer loans declined by $3 million, or 1%, from the end of the second quarter.

Deposits and Borrowings
Total deposits amounted to $3.4 billion at September 30, 2018, up by $93 million, or 3%, from the end of the preceding quarter.  The increases reflected seasonal inflows of various institutional and governmental depositors based on their underlying business cycles, as well as growth in time certificates of deposit resulting from a promotional campaign that began in April 2018.

Federal Home Loan Bank advances amounted to $828 million at September 30, 2018, down by $73 million from the balance at June 30, 2018, due to growth in deposits.

Asset Quality
Total nonaccrual loans amounted to $10.8 million, or 0.30% of total loans, at September 30, 2018, down from $11.7 million, or 0.34% of total loans, at June 30, 2018.  Total past due loans amounted to $13.5 million, or 0.38% of total loans, at September 30, 2018, down from $16.7 million, or 0.48% of total loans, at June 30, 2018.

Based on management's assessment of loan and credit quality metrics, loss exposures and changes in the loan portfolio during the quarter, a loan loss provision totaling $350 thousand was recognized in the third quarter of 2018, compared to a loan loss provision of $400 thousand recognized in the preceding quarter.  Net charge-offs were nominal in both the third and second quarter of 2018, totaling $15 thousand and $90 thousand, respectively.  The allowance for loan losses amounted to $26.5 million, or 0.75% of total loans, at September 30, 2018, compared to $26.2 million, or 0.75% of total loans, at June 30, 2018.

Capital and Dividends
Total shareholders' equity was $428 million at September 30, 2018, up by $6.3 million from June 30, 2018, reflecting net income of $17.5 million, partially offset by $7.5 million in dividends declared and a $4.0 million reduction in the accumulated comprehensive income component of shareholders' equity primarily due to a temporary decline in the fair value of available for sale securities.

Capital levels at September 30, 2018 exceeded the regulatory minimum levels to be considered well capitalized, with a total risk-based capital ratio of 12.77% at September 30, 2018, compared to 12.61% at June 30, 2018.  Book value per share amounted to $24.75 at September 30, 2018, compared to $24.40 at June 30, 2018.

The Board of Directors declared a quarterly dividend of 43 cents per share for the quarter ended September 30, 2018.  The dividend was paid on October 12, 2018 to shareholders of record on October 1, 2018.

Conference Call
Washington Trust will host a conference call to discuss its third quarter results, business highlights and outlook on Tuesday, October 23, 2018 at 8:30 a.m. (Eastern Time).  Individuals may dial in to the call at 1-877-407-9208.  An audio replay of the call will be available, shortly after the conclusion of the call, by dialing 1-844-512-2921 and entering the Replay PIN Number 13683640; the audio replay will be available through October 30, 2018.  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 December 31, 2018.

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; occurrences of cyberattacks, hacking and identity theft; 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, 2017, 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.

 
Washington Trust Bancorp, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
      
  Sep 30,
2018
  Jun 30,
2018
  Mar 31,
2018
  Dec 31,
2017
  Sep 30,
2017
 
Assets:     
Cash and due from banks$72,934 $132,068 $85,680 $79,853 $128,580 
Short-term investments 2,917  2,624  2,322  3,070  2,600 
Mortgage loans held for sale 22,571  35,207  19,269  26,943  28,484 
Securities:     
Available for sale, at fair value 812,647  776,693  787,842  780,954  714,355 
Held to maturity, at amortized cost 10,863  11,412  11,973  12,541  13,241 
Total securities 823,510  788,105  799,815  793,495  727,596 
Federal Home Loan Bank stock, at cost 44,525  46,281  41,127  40,517  42,173 
Loans:     
Total loans 3,556,203  3,490,230  3,387,406  3,374,071  3,323,078 
Less allowance for loan losses 26,509  26,174  25,864  26,488  27,308 
Net loans 3,529,694  3,464,056  3,361,542  3,347,583  3,295,770 
Premises and equipment, net 28,195  28,377  28,316  28,333  28,591 
Investment in bank-owned life insurance 79,891  79,319  73,782  73,267  72,729 
Goodwill 63,909  63,909  63,909  63,909  63,909 
Identifiable intangible assets, net 8,400  8,645  8,893  9,140  9,388 
Other assets 94,126  88,651  81,671  63,740  69,410 
Total assets$4,770,672 $4,737,242 $4,566,326 $4,529,850 $4,469,230 
Liabilities:     
Deposits:     
Noninterest-bearing deposits$611,829 $577,656 $601,478 $578,410 $575,866 
Interest-bearing deposits 2,802,519  2,743,955  2,654,956  2,664,297  2,581,215 
Total deposits 3,414,348  3,321,611  3,256,434  3,242,707  3,157,081 
Federal Home Loan Bank advances 828,392  901,053  808,677  791,356  814,045 
Junior subordinated debentures 22,681  22,681  22,681  22,681  22,681 
Other liabilities 77,342  70,326  65,453  59,822  61,195 
Total liabilities 4,342,763  4,315,671  4,153,245  4,116,566  4,055,002 
Shareholders’ Equity:     
Common stock 1,081  1,080  1,079  1,077  1,076 
Paid-in capital 119,220  118,883  118,172  117,961  117,189 
Retained earnings 346,685  336,670  326,505  317,756  312,334 
Accumulated other comprehensive loss (39,077) (35,062) (32,675) (23,510) (16,371)
Total shareholders’ equity 427,909  421,571  413,081  413,284  414,228 
Total liabilities and shareholders’ equity$4,770,672 $4,737,242 $4,566,326 $4,529,850 $4,469,230 
                


 
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; Dollars in thousands, except per share amounts)
         
 For the Three Months Ended For the Nine Months
Ended
  Sep 30,
2018
  Jun 30,
2018
  Mar 31,
2018
  Dec 31,
2017
  Sep 30,
2017
   Sep 30,
2018
  Sep 30,
2017
 
Interest income:        
Interest and fees on loans$38,877 $37,101 $34,578 $33,459 $32,509  $110,556 $94,503 
Taxable interest on securities 5,383  5,358  5,118  4,719  4,655   15,859  14,208 
Nontaxable interest on securities 9  20  23  24  41   52  225 
Dividends on Federal Home Loan Bank stock 634  550  516  481  467   1,700  1,293 
Other interest income 261  257  205  217  197   723  457 
Total interest and dividend income 45,164  43,286  40,440  38,900  37,869   128,890  110,686 
Interest expense:        
Deposits 6,546  5,254  4,422  4,136  3,835   16,222  10,928 
Federal Home Loan Bank advances 4,937  4,707  3,983  3,708  3,816   13,627  10,669 
Junior subordinated debentures 232  214  183  167  159   629  446 
Other interest expense              1 
Total interest expense 11,715  10,175  8,588  8,011  7,810   30,478  22,044 
Net interest income 33,449  33,111  31,852  30,889  30,059   98,412  88,642 
Provision for loan losses 350  400    200  1,300   750  2,400 
Net interest income after provision for loan losses 33,099  32,711  31,852  30,689  28,759   97,662  86,242 
Noninterest income:        
Wealth management revenues 9,454  9,602  10,273  9,914  10,013   29,329  29,432 
Mortgage banking revenues 2,624  2,941  2,838  3,097  3,036   8,403  8,295 
Service charges on deposit accounts 885  903  863  946  942   2,651  2,726 
Card interchange fees 983  961  847  904  894   2,791  2,598 
Income from bank-owned life insurance 572  537  515  537  546   1,624  1,624 
Loan related derivative income 278  668  141  470  1,452   1,087  2,744 
Other income 419  381  266  342  400   1,066  1,180 
Total noninterest income 15,215  15,993  15,743  16,210  17,283   46,951  48,599 
Noninterest expense:        
Salaries and employee benefits 17,283  17,304  17,772  17,194  17,362   52,359  51,697 
Net occupancy 2,013  1,930  2,002  1,859  1,928   5,945  5,662 
Outsourced services 1,951  2,350  1,873  1,960  1,793   6,174  4,960 
Equipment 1,080  1,069  1,180  1,198  1,380   3,329  4,160 
Legal, audit and professional fees 559  555  726  562  534   1,840  1,732 
FDIC deposit insurance costs 410  422  404  389  308   1,236  1,258 
Advertising and promotion 440  329  177  466  416   946  1,015 
Amortization of intangibles 245  247  248  248  253   740  787 
Change in fair value of contingent consideration       (333)      (310)
Other expenses 2,081  2,082  2,748  2,211  2,780   6,911  7,385 
Total noninterest expense 26,062  26,288  27,130  25,754  26,754   79,480  78,346 
Income before income taxes 22,252  22,416  20,465  21,145  19,288   65,133  56,495 
Income tax expense 4,741  4,742  4,254  13,163  6,326   13,737  18,552 
Net income$17,511 $17,674 $16,211 $7,982 $12,962  $51,396 $37,943 
         
Net income available to common shareholders$17,475 $17,636 $16,173 $7,958 $12,934  $51,284 $37,859 
         
Weighted average common shares outstanding:        
Basic 17,283  17,272  17,234  17,223  17,212   17,263  17,201 
Diluted 17,382  17,387