Washington Trust Reports Second Quarter 2019 Earnings

WESTERLY, R.I., July 22, 2019 /PRNewswire/ -- Washington Trust Bancorp, Inc. WASH, parent company of The Washington Trust Company, today announced second quarter 2019 net income of $17.3 million, or $0.99 per diluted share, compared to net income of $17.5 million, or $1.00 per diluted share, reported for the first quarter of 2019.

"Washington Trust's second quarter earnings reflect our success at generating revenues from our diversified business model," stated Edward O. Handy III, Chairman and Chief Executive Officer.  "We continue to see positive results from our key business lines, despite a competitive and challenging economic environment."

Selected highlights for the second quarter of 2019 include:

• Returns on average equity and average assets were 14.58% and 1.34%, respectively.
• Mortgage banking revenues were $3.6 million, up by $994 thousand, or 38%, from the preceding quarter.
• Total loans amounted to $3.7 billion, down by $8.1 million from the preceding quarter. Total loans were up by $240 million, or 7%, from the balance at June 30, 2018.
• Total deposits amounted to $3.5 billion, up by $362 thousand from the preceding quarter. Total deposits were up by $183 million, or 6%, from the balance at June 30, 2018.
• In June, Washington Trust declared a quarterly dividend of 51 cents per share, representing a 4 cent per share, or 9%, increase over the preceding quarter.

Net Interest Income
Net interest income was $33.9 million for the second quarter of 2019, down by $726 thousand, or 2%, from the first quarter of 2019.  The net interest margin was 2.81% for the second quarter, down by 12 basis points from 2.93% reported in the preceding quarter.  Income associated with loan payoffs and prepayment penalties, which is included in net interest income, was modest at $37 thousand in the second quarter and $49 thousand in the preceding quarter.

Significant linked quarter changes included:

• Average interest-earning assets increased by $56 million, including an increase of $32 million in average commercial loans. The yield on interest-earning assets for the second quarter was 4.18%, down by 6 basis points from the preceding quarter. The yield was impacted by lower market interest rates.
• Average interest-bearing liabilities increased by $45 million, including an increase of $57 million in average wholesale funding balances (wholesale brokered time deposits and Federal Home Loan Bank advances), partially offset by a $12 million decline in average in-market deposits. The cost of interest-bearing liabilities for the second quarter was 1.68%, up by 8 basis points from the preceding quarter. This increase largely reflected higher rates paid on wholesale funding sources and promotional certificates of deposit.

Noninterest Income
Noninterest income totaled $16.8 million for the second quarter of 2019, up by $1.4 million, or 9%, from the first quarter of 2019.  Significant linked quarter changes included:

• Wealth management revenues were $9.5 million for the second quarter of 2019, up by $297 thousand, or 3%, on a linked quarter basis, consisting of increases of $220 thousand in asset-based revenues and $77 thousand in transaction-based revenues. Wealth management assets under administration stood at $6.5 billion at June 30, 2019, up by $128.8 million, or 2%, from the balance at March 31, 2019. The average balance of wealth management assets under administration for the second quarter of 2019 increased by 3% from the average balance in the preceding quarter. Both the increase in asset-based revenues and wealth management assets under administration were attributable to financial market appreciation.
  
  In late June, two client-facing senior counselors in our Weston Financial Group subsidiary left the firm.  As a result, Washington Trust could experience an increased level of client asset outflows in upcoming months.
  
  
• Mortgage banking revenues totaled $3.6 million for the second quarter of 2019, up by $994 thousand, or 38%, from the preceding quarter. Mortgage loans sold in the secondary market amounted to $137.4 million for the second quarter of 2019, an increase of $45.3 million, or 49%, compared to the preceding quarter.

Noninterest Expenses
Noninterest expenses totaled $28.2 million for the second quarter of 2019, up by $1.2 million, or 4%, from the first quarter of 2019.  The linked quarter change reflected increases of $817 thousand in salaries and employee benefits expense and $286 thousand in advertising and promotion costs.  The increase in salaries and employee benefits expense from the preceding quarter reflected increased commissions expense due to an increase in mortgage banking activities.  The linked quarter increase in advertising and promotion costs was largely due to the timing of promotional activities.

Income tax expense totaled $4.7 million for the second quarter of 2019, down by $180 thousand from the preceding quarter.  The effective tax rate for the second quarter of 2019 was 21.3%, compared to 21.7% for the preceding quarter.  Based on current federal and applicable state income tax statutes, the Corporation currently expects its 2019 effective tax rate to be 21.6%.

Investment Securities
The securities portfolio totaled $969 million at June 30, 2019, down by $26 million from the balance at March 31, 2019.  The decrease was primarily due to routine principal pay-downs on mortgage-backed securities, partially offset by an increase in the fair value of available for sale debt securities.  Investment securities represented 19% of total assets at both June 30, 2019 and March 31, 2019.

Loans
Total loans amounted to $3.7 billion at June 30, 2019, down by $8 million from the end of the preceding quarter.  The commercial real estate portfolio increased by $19 million, while the commercial and industrial portfolio declined by $27 million, from the end of the prior quarter.  Commercial loan originations and advances totaled $107 million in the second quarter of 2019, offset by payoffs and paydowns totaling $113 million during the period.  The residential real estate loan portfolio decreased by $7 million from the end of the first quarter of 2019 and consumer loan portfolio increased by $6 million from the balance at March 31, 2019.

Deposits and Borrowings
Total deposits amounted to $3.5 billion at June 30, 2019, unchanged from the end of the preceding quarter.  Excluding the balances of wholesale brokered time deposits, total in-market deposits were up by $1 million.  Federal Home Loan Bank advances amounted to $1.1 billion at June 30, 2019, up by $5 million from the balance at March 31, 2019.

Asset Quality
Total nonaccrual loans amounted to $12.9 million, or 0.34% of total loans, at June 30, 2019, compared to $12.4 million, or 0.33% of total loans, at March 31, 2019.  Total past due loans amounted to $17.9 million, or 0.48% of total loans, at June 30, 2019, compared to $14.7 million, or 0.39% of total loans, at March 31, 2019.  The increase in past due loans was largely due to one commercial real estate loan with a carrying value of $2.7 million that went delinquent in the second quarter of 2019.  This loan returned to current status in early July 2019.

A loan loss provision totaling $525 thousand was recognized in the second quarter of 2019, compared to a loan loss provision of $650 thousand recognized in the preceding quarter.  These provisions were based on management's assessment of loss exposure, as well as loan loss allocations commensurate with changes in the loan portfolio.  Net charge-offs totaled $771 thousand in the second quarter and were largely attributable to one residential real estate relationship.  Net charge-offs were $78 thousand in the preceding quarter.  The allowance for loan losses amounted to $27.4 million, or 0.73% of total loans, at June 30, 2019, compared to $27.6 million, or 0.74% of total loans, at March 31, 2019.

Capital and Dividends
Total shareholders' equity was $484 million at June 30, 2019, up by $14.4 million from March 31, 2019.  This increase included net income of $17.3 million and an increase of $5.6 million in the accumulated other comprehensive income component of shareholders' equity reflecting an increase in the fair value of available for sale debt securities, partially offset by $8.9 million in dividend declarations in the second quarter.  The Board of Directors declared a quarterly dividend of 51 cents per share for the quarter ended June 30, 2019, an increase of 4 cents per share, or 9%, over the preceding quarter.  The dividend was paid on July 12, 2019 to shareholders of record on July 1, 2019.

Capital levels at June 30, 2019 exceeded the regulatory minimum levels to be considered well capitalized, with a total risk-based capital ratio of 12.80% at June 30, 2019, compared to 12.59% at March 31, 2019.  Book value per share amounted to $27.93 at June 30, 2019, compared to $27.15 at March 31, 2019.

Conference Call
Washington Trust will host a conference call to discuss its second quarter results, business highlights and outlook on Tuesday, July 23, 2019 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 10132712; the audio replay will be available through August 5, 2019.  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, 2019.

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, 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.