Business context and reporting period
Washington Trust Bancorp, Inc. is a regional bank holding company offering commercial, residential and consumer lending, deposit products, and wealth management in Rhode Island, eastern Massachusetts and Connecticut. This unaudited Form 10-Q covers the quarter ended March 31, 2021; operating comparisons are with Q1 2020 unless stated otherwise. Balance-sheet comparisons are with December 31, 2020.
Financial performance and condition
| Metric | Q1 2021 / March 31, 2021 | Comparable |
|---|---|---|
| Total revenue | $58.8 million | $52.5 million; up 12% |
| Net interest income | $32.9 million; FTE net interest margin 2.51% | $32.6 million; margin 2.61% |
| Provision for credit losses | $2.0 million benefit | $7.0 million provision |
| Noninterest income | $26.0 million | $19.9 million; up 30% |
| Noninterest expense | $34.7 million | $30.5 million; up 14% |
| Net income / diluted EPS | $20.5 million / $1.17 | $11.9 million / $0.68 |
| Total assets / total loans | $5.72 billion / $4.19 billion | Assets up $6.2 million; loans down $1.3 million from year-end |
| Deposits / FHLB advances | $4.55 billion / $466.9 million | Deposits up $170.8 million; advances down $126.9 million from year-end |
| Allowance for credit losses | $42.1 million, or 1.00% of loans | $44.1 million, or 1.05%, at year-end |
Mortgage banking revenue rose 96% to $11.9 million and wealth management revenue increased 14% to $9.9 million. Mortgage loans sold to the secondary market totaled $292.0 million, versus $162.2 million. Wealth-management assets under administration were $7.05 billion, up 32% year over year, primarily from investment appreciation.
Net cash used in operating activities was $3.4 million; investing activities used $62.7 million, largely for securities purchases; financing activities provided $34.6 million. Cash and cash equivalents ended the quarter at $170.7 million, versus $185.3 million at March 31, 2020. Available unused funding capacity was $1.72 billion, in addition to a $40 million unused FHLB line. Shareholders’ equity was $533.6 million. The Corporation’s total risk-based capital ratio was 13.85%; the filing states capital exceeded applicable well-capitalized requirements.
Material changes and notable items
- Net income increased 72%, supported by higher noninterest income and the shift from a prior-year credit-loss provision to a current-quarter benefit. The lower provision reflected improved forecast economic conditions and stable asset quality.
- Net interest margin contracted 10 basis points year over year as asset yields repriced down faster than funding costs. FTE net interest income increased only 1%: asset growth and lower funding costs were largely offset by lower yields.
- Noninterest expense included $3.3 million of penalties after prepayment of $26.8 million of higher-yielding FHLB advances.
- Other income included a $1.0 million litigation settlement. Mortgage banking results also reflected fair-value changes, including a $1.5 million decrease in fair value of loans held for sale, compared with an increase of $0.9 million a year earlier.
- Other comprehensive loss was $12.6 million, primarily reflecting a decline in available-for-sale securities fair value as interest rates changed. Shareholders’ equity declined $0.6 million from year-end.
Outlook, risks and contingencies
The filing gives no specific earnings or financial guidance. Management cautions that interim results are not necessarily indicative of full-year results. It reported that liquidity remained within internal target ranges and that interest-rate simulations were within established tolerances. Simulations estimated net interest income would decline 2.23% over 12 months under a 100-basis-point rate decrease and rise 5.47% under a 100-basis-point increase; these are modeled scenarios, not forecasts.
COVID-19 and borrower performance remain key uncertainties. At March 31, active payment deferments covered 88 loans totaling $191.4 million, or 5% of loans excluding PPP loans; by May 3, this had declined to 44 loans totaling $121.5 million. Nonaccrual loans were $13.0 million, or 0.31% of loans, and net charge-offs were $18,000. The bank’s portfolio is concentrated in southern New England and includes commercial real estate exposure; hospitality and healthcare borrowers were among those with active deferments. PPP loans totaled $228.6 million at quarter-end, and the company said a significant portion was expected to be forgiven.
Other risks identified include changes in interest rates, credit quality and collateral values, deposit outflows, loan demand, securities valuations, market performance affecting wealth-management assets, competition, regulation, cybersecurity, fraud and operational disruption. Management said ordinary-course litigation was not expected to materially affect financial position or results; it reported no material change to the risk factors in its 2020 Form 10-K.
Important facts for investors to verify
- Whether the Q1 credit-loss benefit is sustainable and how the allowance responds to updated economic forecasts and borrower performance.
- Subsequent performance of loans with COVID-related deferments, particularly commercial real estate hospitality and healthcare exposures; reconcile the March 31 and May 3 deferment figures.
- PPP forgiveness timing and remaining balances, and the effect of fee amortization on net interest income.
- Whether strong mortgage banking and wealth-management revenue can persist, given interest-rate sensitivity, refinancing volumes and financial-market movements.
- Net interest margin, deposit mix and funding costs, including exposure to rate changes and the large modeled securities-value decline under rising rates.
- The effect of securities unrealized losses on accumulated other comprehensive income and capital, alongside regulatory capital ratios and available liquidity.