Washington Trust Reports Third Quarter 2015 Earnings

WESTERLY, R.I., Oct. 19, 2015 (GLOBE NEWSWIRE) -- Washington Trust Bancorp, Inc. (Nasdaq:WASH), parent company of The Washington Trust Company, today announced net income of $10.2 million, or 60 cents per diluted share, for the third quarter of 2015, compared to net income of $11.5 million, or 68 cents per diluted share, reported for the second quarter of 2015.  The decrease in earnings was largely reflective of conditions affecting revenues in several business lines, including mortgage banking, commercial banking and wealth management.

Earnings on a year-to-date basis are up 10% over the same period in 2014.  Returns on average equity and average assets were 12.17% and 1.20%, respectively, for the nine months ended September 30, 2015, compared to 11.60% and 1.21%, respectively, for the same period in 2014.

"Washington Trust's third quarter results reflect our continued efforts to compete and grow in a challenging environment," stated Joseph J. MarcAurele, Chairman and Chief Executive Officer.  "During the quarter we completed the acquisition of Halsey Associates, Inc., providing a wealth management presence and client base in Connecticut.  While loan growth was affected by strong competition and other factors, asset quality remained very satisfactory and we had solid deposit growth in the quarter."

Acquisition of Halsey Associates, Inc.

The acquisition of Halsey Associates, Inc. ("Halsey"), a registered investment adviser firm located in New Haven, CT, was completed on August 1, 2015.  The cost to acquire Halsey was $10.0 million, including approximately $1.7 million in cash, $5.4 million in the form of 136,543 shares of Washington Trust common stock and $2.9 million for the estimated present value of future earn-outs to be paid.  As of the date of acquisition, Halsey's assets under administration amounted to approximately $840 million.  The transaction resulted in the recognition of intangible assets and goodwill of approximately $6.6 million and $6.7 million, respectively.  Acquisition related expenses amounted to $504 thousand in the third quarter and $433 thousand in the second quarter.  On an after-tax basis, these acquisition related expenses resulted in a charge of 3 cents per diluted share in the third quarter of 2015 and 2 cents per diluted share in the second quarter of 2015.  A small amount of acquisition related expenses is expected to be recognized in the fourth quarter of 2015.

Net Interest Income

Net interest income totaled $26.0 million for the third quarter of 2015, a slight decrease from the second quarter of 2015. This reflects continued pressure on net interest margin, a lower level of prepayment fee income and a modest increase of average interest‑earning assets of $46.1 million, or 1%.

The net interest margin was 3.07% for the third quarter of 2015, down 8 basis points from the previous quarter.  Commercial loan prepayment fee income, which is included in net interest income, amounted to $169 thousand in the third quarter of 2015, compared to $519 thousand in the prior quarter.  Excluding the loan prepayment fee income in each period, the third quarter net interest margin was 3.05%, down by 4 basis points on a linked quarter basis.  This decline in the net interest margin reflects continued pressure on asset yields resulting from a sustained low interest rate environment.

Noninterest Income

Noninterest income totaled $13.9 million for the third quarter of 2015, down by $1.3 million, or 9%, from the second quarter of 2015.  Significant linked quarter changes included:

• Wealth management revenues totaled $8.9 million for the third quarter, down slightly by $10 thousand, or 0.1%, from the previous quarter.  While total wealth management revenues were essentially unchanged, included in these results were $662 thousand of revenues generated by Halsey since the August 1 acquisition date.  Overall wealth management revenues were affected by equity market declines in the quarter and also included a $344 thousand decline in tax preparation fees, which are typically concentrated in the second quarter.
  
  Wealth management assets under administration amounted to $5.7 billion at September 30, 2015, up by $503 million, or 9.6%, in the quarter.  While the net increase reflects the addition of assets under administration attributable to Halsey, total wealth management assets under administration were impacted by financial market declines. 
  
  

• Mortgage banking revenues (net gains on loan sales and commissions on loans originated for others) totaled $2.0 million for the third quarter, down by $785 thousand, or 29%, on a linked quarter basis.  The decline largely reflects a lower yield on loan sales and a decrease in loan sales volume.  Residential mortgage loans sold to the secondary market amounted to $132.4 million in the third quarter, down by $10.8 million, compared to the second quarter.
  
• Loan related derivative income amounted to $327 thousand in the third quarter, down by $390 thousand from the prior quarter.
  
• Other income totaled $457 thousand for the third quarter, down by $205 thousand on a linked quarter basis.  The decrease was largely due to a $250 thousand settlement payment received in the second quarter on a trust preferred debt obligation previously held by the Corporation.  On an after-tax basis, this second quarter transaction amounted to 1 cent per diluted share. 
  
  

Noninterest Expenses

Noninterest expenses totaled $24.5 million for the third quarter of 2015, up by $239 thousand, or 1%, from the second quarter of 2015.  The increase in noninterest expenses was largely attributable to the addition of Halsey for the two-month period since the date of acquisition, offset, in part, by a decline in advertising and promotion expenses due to the timing of promotional activities.  Halsey noninterest expenses since the date of acquisition totaled $447 thousand, including $289 thousand of salaries and benefits expense and $110 thousand of amortization of intangible assets.

Income tax expense amounted to $5.0 million for the third quarter of 2015, down by $423 thousand, or 8%, from the amount recognized in the previous quarter.  The effective tax rate for the third quarter of 2015 was 32.7%, compared to 31.9% for the second quarter of 2015.  The effective tax rate for the remainder of 2015 will be approximately 32.5%.

Loans

Total loans amounted to $2.9 billion at September 30, 2015, up by $21.3 million, or 1%, from the balance at June 30, 2015.  Significant linked quarter changes included:

• Total commercial loans decreased by $3.7 million, or 0.2%, with an $8.0 million increase in commercial real estate and an $11.7 million decline in commercial and industrial.  The $8.0 million increase in the commercial real estate portfolio included a $10.9 million increase in construction and development loans, but was hindered by unscheduled loan payoffs of approximately $36 million in the most recent quarter.  The decline in the commercial and industrial portfolio was primarily due to decreased line utilization by commercial borrowers.
  
• The residential real estate loan portfolio grew by $23.0 million, or 2%.
  
• Consumer loans increased by $2.1 million, or 1%, with growth in home equity lines of credit. 
  
  

Investment Securities

The securities portfolio amounted to $344.9 million at September 30, 2015, down $29.0 million, or 8%, from the balance at June 30, 2015.  The decrease reflects calls of securities and routine principal pay-downs on mortgage backed securities, partially offset by purchases of U.S. government agency securities.

Deposits and Borrowings

Total deposits grew by $97.2 million, or 4%, in the third quarter of 2015 and amounted to $2.8 billion at September 30, 2015.  Wholesale brokered time deposits decreased by $17.0 million from the previous quarter.  Excluding wholesale brokered time deposits, in-market deposits increased by $114.2 million, or 5%.  This increase included a $56.1 million, or 12%, increase in demand deposit accounts.

FHLBB advances amounted to $381.6 million at September 30, 2015, down by $89.7 million, or 19%, from June 30, 2015.

Asset Quality

Asset quality metrics remained at manageable levels in the third quarter of 2015.  Total nonaccrual loans amounted to $16.8 million, or 0.57% of total loans, at September 30, 2015, up from $15.1 million, or 0.52%, at June 30, 2015.  Total past due loans amounted to $21.8 million, or 0.74% of total loans, at September 30, 2015, down from $24.0 million, or 0.82% of total loans, at June 30, 2015.

A loan loss provision totaling $200 thousand was charged to earnings in the third quarter of 2015, compared to a loss provision of $100 thousand recognized in the second quarter of 2015.  The third quarter provision includes loan loss allocations commensurate with growth in loan portfolio balances, offset by reductions in other loan loss exposures based on management's assessment of continued improvement in credit quality conditions.  Net charge-offs amounted to $626 thousand in the third quarter of 2015, compared to $323 thousand in the second quarter of 2015.  The allowance for loan losses was $27.2 million, or 0.92% of total loans, at September 30, 2015, compared to $27.6 million, or 0.94% of total loans, at June 30, 2015.

Capital and Dividends

Total shareholder's equity was $370.5 million at September 30, 2015, up by $11.4 million from June 30, 2015.  Capital levels at September 30, 2015 exceeded the regulatory minimum levels to be considered well capitalized, with a total risk‑based capital ratio of 12.80% at September 30, 2015, compared to 12.78% at June 30, 2015.

The Board of Directors declared a quarterly dividend of 34 cents per share for the quarter ended September 30, 2015.  The dividend was paid on October 14, 2015 to shareholders of record on October 1, 2015.

Conference Call

Washington Trust will host a conference call to discuss third quarter results, business highlights and outlook on Tuesday, October 20, 2015 at 8:30 a.m. (Eastern Time).  Individuals may dial in to the call at 1-877-407-0784.  An audio replay of the call will be available, shortly after the conclusion of the call, by dialing 1-877-870-5176 and entering the Replay PIN Number 13621367; the audio replay will be available through October 30, 2015.  Also, a webcast of the call will be posted in the Investor Relations section of Washington Trust's web site, www.washtrustbancorp.com, and will be available through December 31, 2015.

Background

Washington Trust Bancorp, Inc. is the parent of The Washington Trust Company, a state-chartered bank headquartered in Westerly, Rhode Island. Founded in 1800, Washington Trust is the oldest community bank in the nation and is the largest independent bank headquartered in Rhode Island. Washington Trust offers a full range of financial services, including commercial banking, small business 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 OMX® under the symbol WASH. Investor information is available on the Corporation’s web site: www.washtrustbancorp.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 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 the control of Washington Trust.  These risks, uncertainties and other factors may cause the actual results, performance or achievements of Washington Trust 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; additional government intervention in the U.S. financial system; 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 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 the our competition; changes in legislation or regulation and accounting principles, policies and guidelines; the ability to fully realize the expected cost savings and revenues from the Halsey acquisition; 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, 2014, 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.