Washington Trust Bancorp, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Washington Trust is a Rhode Island-based bank holding company providing commercial, residential and consumer banking, and wealth management services primarily in southern New England.
Financial performance
| Metric | Q1 2024 | Comparable period / change |
|---|---|---|
| Total revenue | $48.8 million | Down 3% from $50.5 million |
| Net interest income | $31.7 million | Down 15% from $37.2 million |
| Net interest margin, FTE | 1.84% | 2.33% in Q1 2023 |
| Provision for credit losses | $0.7 million | $0.8 million in Q1 2023 |
| Net income | $10.9 million | Down 15% from $12.8 million |
| Diluted EPS | $0.64 | $0.74 in Q1 2023 |
| Net cash from operating activities | $1.9 million | $11.1 million in Q1 2023 |
Noninterest income rose 29% to $17.2 million, including a $2.1 million litigation settlement, higher mortgage banking revenue and increased wealth management revenue. Noninterest expense increased 2% to $34.4 million, driven partly by a 65% increase in FDIC deposit insurance costs. The quarterly dividend declared was $0.56 per share.
Financial position, funding and capital
- At March 31, total assets were $7.25 billion, loans were $5.69 billion and deposits were $5.35 billion. Loans grew 1% from year-end; deposits were essentially unchanged.
- FHLB advances were $1.24 billion, up $50 million from year-end. Wholesale brokered time deposits were $673.7 million, or 13% of deposits.
- Cash and cash equivalents were $105.6 million. Reported contingent liquidity was $1.79 billion, equal to 146% of uninsured deposits before stated exclusions. Management said liquidity remained within internal target ranges and funding was adequate for anticipated needs.
- Shareholders’ equity was $466.9 million; the equity-to-assets ratio was 6.44%. The Bank’s total risk-based capital ratio was 11.51%, above the 10.00% well-capitalized threshold; management reported capital above regulatory minimums and the conservation buffer.
- Available-for-sale securities had a fair value of $970.1 million and net unrealized losses of approximately $167.0 million. Accumulated other comprehensive loss widened to $148.9 million, primarily reflecting securities fair-value changes. Management said it did not intend, and was not more likely than not required, to sell the loss-position securities before recovery.
Material changes and credit quality
- Higher funding costs more than offset growth in earning assets and improved loan yields: FTE net interest income fell $5.5 million year over year. Interest expense rose $22.0 million, while interest income rose $16.5 million. Management attributed pressure to higher deposit rates, movement into higher-cost deposit products, and increased wholesale funding.
- Average loans grew 10% year over year, while the average loan yield increased to 5.38% from 4.73%. Average interest-bearing deposits rose 11%, and their average cost increased to 3.27% from 1.89%.
- Nonperforming assets declined to $31.4 million, or 0.43% of assets, from $45.3 million, or 0.63%, at year-end. Nonaccrual loans fell to $30.7 million, mainly after a commercial real estate loan returned to accrual status. Potential problem loans increased to $23.8 million from $22.9 million and largely comprised two CRE office loans.
- The allowance for credit losses on loans was $41.9 million, or 0.74% of loans, versus $41.1 million, or 0.73%, at year-end. Net charge-offs were $52,000. Management cited loan growth, slower prepayments and forecast economic conditions in its provision assessment.
- CRE represented 38% of loans. CRE office loans totaled $284.7 million; all were current, 93% were accruing, and 15% were classified. The portfolio is concentrated in southern New England, and management identified office-market conditions as an area of industry concern.
Outlook, risks and unusual items
- The filing provides no specific earnings, revenue, margin or balance-sheet guidance. Management’s interest-rate simulations are scenario analyses, not forecasts: at March 31, a 100-basis-point rate decrease was estimated to reduce Year 1 net interest income by 3.51%, while a 100-basis-point increase was estimated to raise it by 0.61%. Year 2 sensitivity was negative in rising-rate scenarios.
- Management cautioned that elevated rates and competition could continue deposit migration toward higher-cost products; deposit outflows, commitment drawdowns and changing rates could affect liquidity and earnings. Other stated risks include credit deterioration, CRE conditions, market-value declines, operational and cybersecurity incidents, regulatory changes and economic uncertainty.
- The $2.1 million litigation settlement boosted current-quarter noninterest income. The qualified pension plan is being terminated, with assets expected to be distributed in 2025 subject to approvals; settlement is expected to result in a pretax charge, whose amount depends on rates, asset returns, participant elections and annuity pricing.
- The 2024 repurchase authorization covers up to 850,000 shares; no shares had been repurchased under it by March 31. Management reported no material change in risk factors from the 2023 Form 10-K, and stated that ordinary-course legal matters are not expected to materially affect financial position or results.
Most important facts for investors to verify
- Whether net interest margin stabilizes as deposit and wholesale funding costs evolve.
- Whether deposit retention, brokered funding levels and contingent liquidity remain adequate amid competition and large time-deposit maturities.
- Credit performance in CRE—especially office exposures—and the trajectory of potential problem loans, nonaccruals and the allowance.
- Whether securities unrealized losses and accumulated other comprehensive loss change materially with interest rates or liquidity needs.
- The eventual cost and timing of the pension-plan termination, and the extent to which reported earnings benefit from the nonrecurring litigation settlement.