Washington Trust Bancorp, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. Washington Trust is a regional bank holding company serving Rhode Island, eastern Massachusetts and Connecticut, with commercial, residential and consumer lending, deposit and wealth management businesses. This unaudited filing covers the quarter and six months ended June 30, 2022; balance-sheet comparisons are with December 31, 2021. Amounts below are in millions unless otherwise noted.
Financial performance and condition
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net interest income | $37.5 | $34.8 | $72.6 | $67.6 |
| Net income | $20.0 | $17.5 | $36.4 | $37.9 |
| Diluted EPS | $1.14 | $1.00 | $2.08 | $2.17 |
| Total revenue | $53.4 | $55.3 | $105.6 | $114.2 |
| Noninterest income | $15.9 | $20.6 | $33.0 | $46.6 |
| Noninterest expense | $31.1 | $33.0 | $62.3 | $67.7 |
| FTE net interest margin | 2.71% | 2.55% | 2.64% | 2.53% |
Q2 net income rose 14% year over year, while first-half net income declined 4%. Net interest income benefited from higher asset yields and lower average wholesale funding; FTE NIM increased. The Q2 return on average assets was 1.37% and return on average equity was 16.11%.
- Balance sheet at June 30: assets $6.0 billion; loans $4.48 billion, up 5% from year-end; deposits $5.01 billion, up 1%; and shareholders’ equity $476.6 million, down 16%.
- Credit and provision: the allowance for credit losses on loans was $36.3 million, or 0.81% of loans, versus $39.1 million, or 0.91%, at year-end. The company recorded a $3.0 million provision benefit in Q2 and a $2.9 million benefit for the first half. Nonperforming assets were $12.4 million, or 0.21% of assets, compared with $14.2 million, or 0.24%, at year-end.
- Cash flow: first-half operating cash flow was $51.6 million; investing cash use was $312.7 million; financing cash provided was $181.2 million. Cash and cash equivalents ended at $98.6 million, down $79.9 million from year-end.
- Funding and liquidity: FHLB advances were $328.0 million, up from $145.0 million at year-end. The filing reports $2.04 billion of additional funding capacity, including FHLB and Federal Reserve capacity and unencumbered securities. Management said liquidity remained within internal targets.
- Capital and shareholder returns: the total equity-to-assets ratio was 7.97%, down from 9.65%; the company and bank remained above applicable well-capitalized requirements. The company declared dividends of $1.08 per share for the first half and repurchased 175,408 shares for $8.6 million in Q2.
Material changes versus prior periods
- First-half noninterest income fell 29%, primarily because mortgage banking revenues declined 69% to $5.6 million as origination and secondary-market sales activity contracted. Loans sold to the secondary market fell 64% year over year.
- First-half noninterest expense declined 8%. Lower salaries and employee benefits and the absence of prior-year FHLB debt prepayment penalties contributed; those penalties were $4.2 million in first-half 2021.
- Wealth management assets under administration fell to $6.65 billion from $7.78 billion at year-end, primarily due to market depreciation. First-half wealth management revenue was broadly stable year over year.
- Available-for-sale securities had $121.3 million of net unrealized losses at June 30, versus $8.9 million at year-end, mainly reflecting interest-rate changes. The resulting first-half other comprehensive loss was $98.1 million, reducing equity; management said it did not intend to sell the securities and expected to recover their amortized cost.
- Loan growth was led by residential real estate, up $239.4 million from year-end; commercial loans declined. In-market deposits grew $83.1 million while brokered deposits declined $56.5 million.
Outlook, risks and contingencies
The filing gives no specific earnings or financial guidance. Management described plans to open a commercial lending office in New Haven, which opened in July 2022, and a full-service branch in Cumberland, Rhode Island, planned for Q3 2022. Management attributed the Q2 credit-loss benefit to low loss rates, strong credit metrics and its economic forecast.
Key disclosed risks include interest-rate and market volatility, deposit repricing or outflows, loan demand and credit deterioration, collateral and real-estate values, mortgage activity, and declines in wealth-management assets. Interest-rate simulations estimated that a 100-basis-point increase would raise net interest income by 1.64% over months 1–12, while a 100-basis-point decrease would reduce it by 2.17%; results depend on assumptions about balance-sheet mix, deposit behavior and repricing. The company cautions that actual results may differ from simulations.
Off-balance-sheet commitments included $677.6 million of commercial loan commitments, $397.4 million of home-equity lines and $187.7 million of other loan commitments. Management said ordinary-course legal proceedings were not expected to materially affect the company. No material risk-factor changes were reported from the 2021 Form 10-K.
Important facts for investors to verify
- Whether deposit costs, deposit mix and FHLB borrowing continue to evolve as interest rates rise, and how that affects net interest margin and liquidity.
- Whether unrealized securities losses remain temporary and recoverable, and the effect of further rate changes on accumulated other comprehensive loss, equity and regulatory capital.
- Whether mortgage banking revenue remains weak and wealth-management assets recover or face further market-driven declines.
- Whether the declining allowance and provision benefits remain supported by credit performance and economic forecasts; monitor delinquencies, nonaccrual loans and commercial credit quality.
- Whether the stated unused funding capacity and liquidity remain available under stress, including potential deposit runoff and commitment draws.
- Confirm the timing and costs of planned branch expansion and the continuation of dividends and share repurchases within capital and regulatory constraints.