Washington Trust Bancorp, Inc. — 2023 Form 10-K
Business context and reporting period. Washington Trust is a Rhode Island-based bank holding company providing commercial, residential and consumer lending, deposit, mortgage banking and wealth management services, primarily in southern New England. This annual filing covers the year ended December 31, 2023; balance-sheet figures are as of that date. Dollar amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income | $137.1 | $156.0 |
| Noninterest income | $56.1 | $62.6 |
| Total revenue | $193.2 | $218.6 |
| Provision for credit losses | $3.2 | ($1.3) benefit |
| Net income | $48.2 | $71.7 |
| Diluted EPS | $2.82 | $4.11 |
| Net interest margin (FTE) | 2.05% | 2.69% |
| Return on average assets | 0.69% | 1.17% |
| Return on average equity | 10.57% | 14.49% |
- Cash flow: Operating activities provided $31.6 million, investing activities used $550.8 million and financing activities provided $491.0 million. Cash and cash equivalents declined $28.2 million to $90.2 million.
- Balance sheet: Total assets were $7.20 billion, loans $5.65 billion, deposits $5.35 billion and shareholders’ equity $472.7 million. Loans grew 11% and deposits 7% year over year.
- Funding and liquidity: FHLB advances were $1.19 billion, up from $980 million; junior subordinated debentures were $22.7 million. Reported remaining FHLB borrowing capacity was $1.1 billion, and total contingent liquidity was $1.89 billion. Uninsured deposits after specified exclusions were $963.7 million, or 18% of deposits.
- Capital and distributions: The Bancorp’s total risk-based capital ratio was 11.58% (12.37% in 2022); the Bank was reported well capitalized. The company declared $2.24 per share in dividends, with a 79.4% payout ratio, and repurchased 200,000 shares for $8.8 million during 2023.
Material changes versus 2022
- Net income fell 33%, primarily as higher deposit and wholesale funding costs outweighed higher asset yields. Interest expense rose to $171.6 million from $38.5 million; FTE NIM contracted 64 basis points.
- Noninterest income declined 10%. Wealth management revenue fell 8% and mortgage banking revenue fell 24%; loans sold to the secondary market decreased 26% to $250.0 million.
- Noninterest expense increased 4% to $133.6 million, including a $3.0 million increase in FDIC insurance costs. The effective tax rate fell to 14.7% from 21.4%, including a net $3.3 million tax benefit from deferred-tax revaluation.
- Average loans grew 18%; period-end CRE loans rose 15% and residential real estate loans rose 12%. Wholesale brokered deposits increased 83% to $654.1 million.
- Nonaccrual loans rose to $44.6 million from $12.8 million. Nonperforming assets were 0.63% of assets versus 0.19%; the allowance for loan losses was $41.1 million, or 0.73% of loans, versus $38.0 million, or 0.74%.
- Available-for-sale securities had $152.2 million of net unrealized losses, down from $172.4 million; the securities portfolio’s carrying value was $1.00 billion.
Outlook, commentary, risks and unusual items
- The filing provides no specific earnings, revenue or margin guidance. Management said liquidity remained within internal target ranges and believed funding sources were adequate for anticipated needs. Interest-rate sensitivity simulations showed near-term net interest income exposure of negative 3.38% under a 100-basis-point rate decline and positive 0.72% under a 100-basis-point increase; the filing cautions that model assumptions and actual outcomes may differ.
- Management cited higher funding costs and lower wealth management and mortgage activity as key 2023 pressures. Wealth management AUA ended the year at $6.6 billion, up 11%, although average AUA declined 9%; net client outflows were $268.6 million. The departure of four advisors was associated with cumulative withdrawals of $675 million through year-end 2023.
- Credit areas to monitor include three nonaccrual CRE loans totaling $32.8 million, including office and healthcare collateral, and $22.9 million of potential problem loans, largely two office-secured CRE loans. The CRE office portfolio totaled $284.2 million; all were current, while 14% was classified and 2% special mention-rated.
- Key broader risks include interest-rate and deposit competition, reliance on wholesale funding, regional economic and real estate conditions, commercial real estate performance, securities valuation, credit losses, cybersecurity and third-party service providers.
- DOJ settlement: To resolve fair-lending allegations concerning Rhode Island lending from 2016–2021, the Bank committed $7.0 million in loan subsidies and $2.0 million for community outreach and marketing over five years, and committed to opening two full-service branches. The settlement imposed no civil penalties and was court-approved October 31, 2023.
- Other notable items: The company began terminating its qualified pension plan, with distribution expected in 2025; a future pretax settlement charge is expected, but its amount is not clear. A $3.3 million net tax benefit reflected Massachusetts tax-law changes and related deferred-tax adjustments. The 2024 repurchase program authorizes purchases of up to 850,000 shares, subject to conditions.
- The financial statements and internal-control audit received unqualified opinions. The auditor identified the qualitative factors in the commercial-loan allowance estimate as a critical audit matter.
Most important facts for investors to verify
- Whether deposit pricing, mix and wholesale funding needs improve enough to stabilize net interest income and NIM.
- Developments in the $32.8 million of nonaccrual CRE loans and $22.9 million of potential problem loans, including office-property collateral and reserves.
- Actual deposit retention, uninsured-deposit trends and continued availability and cost of FHLB and other contingent funding.
- Progress on the DOJ settlement commitments, including subsidy and outreach spending and the two branch openings.
- The eventual cost and timing of the pension plan termination and any deferred-tax revaluation or realizability changes.