Washington Trust Bancorp, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Washington Trust is a regional financial holding company offering commercial, residential and consumer banking, and wealth management services, principally in Rhode Island, eastern Massachusetts and Connecticut. Comparisons below are year over year unless otherwise noted.
Key financial results
| Metric | Q1 2022 | Comparison / context |
|---|---|---|
| Total revenue | $52.3 million | Down 11% from $58.8 million |
| Net interest income | $35.1 million | Up 7% from $32.9 million; fully taxable equivalent net interest margin was 2.57%, versus 2.51% |
| Noninterest income | $17.2 million | Down 34%; mortgage banking revenues fell 71% to $3.5 million, partly offset by 6% growth in wealth management revenues |
| Noninterest expense | $31.2 million | Down 10%, including no repeat of $3.3 million in prior-year debt prepayment penalties |
| Net income / diluted EPS | $16.5 million / $0.94 | Down 19% and from $1.17, respectively |
| Operating cash flow | $38.6 million provided | Compared with $3.4 million used in Q1 2021 |
| Total assets / loans | $5.85 billion / $4.28 billion | Assets were essentially flat from year-end; loans rose 0.3% |
| Deposits / FHLB advances | $5.13 billion / $55.0 million | Deposits up 3% and advances down 62% from December 31, 2021 |
| Shareholders’ equity | $513.2 million | Down $51.6 million from year-end; total equity-to-assets ratio was 8.78% |
| Regulatory capital | 14.15% total risk-based capital ratio | Corporation remained above applicable well-capitalized thresholds |
Material changes and operating context
- Net interest income benefited from lower funding costs, reduced average wholesale funding, and growth in average interest-earning assets. Average FHLB advances fell by $391.8 million year over year.
- Mortgage banking revenues declined as origination and secondary-market sales slowed amid higher market rates. Loans sold to the secondary market were $130.1 million, down 55% from $292.0 million.
- Wealth management revenues increased 6% to $10.5 million. Assets under administration were $7.49 billion at quarter-end, up 6% from March 2021, but declined during the quarter due to $388.7 million of net investment depreciation and income; net client inflows were $97.4 million.
- Deposits increased $147.9 million from year-end, driven by $261.3 million of in-market deposit growth, partly offset by a $113.4 million reduction in brokered time deposits. Total loans were nearly unchanged, with residential real estate growth largely offset by lower commercial balances and PPP loan forgiveness.
- Equity declined primarily because other comprehensive loss increased by $59.5 million, reflecting lower fair values of available-for-sale securities and cash flow hedges amid interest-rate movements. Available-for-sale securities had $74.9 million of gross unrealized losses at quarter-end; management attributed the declines primarily to rates and spreads, reported no securities credit-loss allowance, and stated it did not intend to sell the securities.
Credit, liquidity, risks and outlook
- The provision for credit losses was $100,000, all related to unfunded commitments; no loan-loss provision was recorded. The prior-year quarter included a $2.0 million reserve release. The loan allowance was $39.2 million, or 0.92% of loans. Nonperforming assets were $12.6 million, or 0.22% of assets, down from $14.2 million at year-end; past-due loans were 0.16% of loans.
- Management reported $2.28 billion of additional funding capacity across FHLB, Federal Reserve and unencumbered securities, in addition to a $40 million unused FHLB line. It said liquidity remained within internal targets and funding sources were adequate for anticipated needs. Deposit runoff and unexpected commitment drawdowns are identified as key contingent-liquidity risks.
- Interest-rate sensitivity modeling estimated that a 100-basis-point increase would raise net interest income by 2.57% over months 1–12, while a 100-basis-point decrease would reduce it by 2.57%. These are model scenarios, not management forecasts; results depend on deposit behavior and other assumptions.
- No formal earnings or financial guidance is provided in the supplied filing text. Management planned to open a full-service branch in Cumberland, Rhode Island, in 2022. It highlighted risks including inflation and economic changes, interest-rate volatility, credit losses, financial-market and securities-value declines, wealth-management asset outflows, competition, cybersecurity, fraud and other operational risks.
- Other notable comparison items: Q1 2021 included $3.3 million of FHLB debt prepayment penalties and $1.0 million of litigation-settlement income. Management said ordinary-course litigation was not expected to materially affect financial position or results; it reported no material change in previously disclosed risk factors.
Important facts for investors to verify
- Whether deposit growth and reduced wholesale funding persist, and how higher rates affect deposit costs, loan demand and net interest margin.
- Whether mortgage banking activity and revenues continue to weaken, and whether wealth-management asset values and fee income withstand market volatility.
- Whether unrealized securities and hedge losses remain temporary and recoverable, and how further interest-rate moves could affect accumulated other comprehensive loss and capital.
- Whether credit quality and the allowance remain adequate if regional economic conditions, real estate values or borrower performance deteriorate.
- The assumptions and limitations behind management’s interest-rate and liquidity stress models; actual results may differ. The filing states interim results are not necessarily indicative of full-year results.