Washington Trust Reports Fourth Quarter and Full-Year 2020 Earnings

WESTERLY, R.I., Jan. 27, 2021 /PRNewswire/ -- Washington Trust Bancorp, Inc. (Nasdaq:WASH), parent company of The Washington Trust Company, today announced fourth quarter 2020 net income of $18.6 million, or $1.07 per diluted share, compared to net income of $18.3 million, or $1.06 per diluted share, reported for the third quarter of 2020.  Net income for the year ended December 31, 2020 totaled $69.8 million, or $4.00 per diluted share, compared to $69.1 million, or $3.96 per diluted share, reported for the prior year.

"Washington Trust reported strong earnings for 2020, a year marked by unprecedented challenges, disruption, and uncertainties," stated Edward O. Handy III, Washington Trust Chairman and Chief Executive Officer.  "Our success was due to the spirit and resilience of our dedicated team of employees, who maintained high service levels and 'business as usual' operations during a major pandemic; the strength and stability of our balance sheet, which continued to provide a diverse stream of earnings during the most volatile of operating environments; and the loyalty and perseverance of our customers, who have trusted us to help them through these difficult times."

Selected financial highlights for the fourth quarter and full-year 2020 include:

• Returns on average equity and average assets for the fourth quarter were 13.96% and 1.28%, respectively, compared to 13.99% and 1.24%, respectively, in the preceding quarter. Full-year returns on average equity and average assets for 2020 were 13.51% and 1.22%, respectively, compared to 14.34% and 1.34%, respectively, in the prior year.
• Mortgage banking revenues amounted to $14.1 million for the fourth quarter and totaled a record $47.4 million for the year. Full-year 2020 mortgage banking revenues were up by $32.6 million, or 220%, from a year ago. The volume of both mortgage originations and sales reached record highs in 2020.
• Wealth management revenues were $9.2 million for the fourth quarter, up by $252 thousand, or 3%, from the preceding quarter. Wealth management assets under administration ("AUA") amounted to a record $6.9 billion at December 31, 2020.
• Total loans amounted to $4.2 billion, up by $303.0 million, or 8%, from a year ago, largely due to origination of Paycheck Protection Program ("PPP") loans in 2020.
• In-market deposits (total deposits less out-of-market wholesale brokered deposits) amounted to $3.8 billion at December 31, 2020, up by $573 million, or 18%, from a year ago.

Net Interest Income
Net interest income was $32.2 million for the fourth quarter of 2020, up by $589 thousand, or 2%, from the third quarter of 2020.  The net interest margin was 2.39% for the fourth quarter, up by 8 basis points from the the preceding quarter.  Both net interest income and the net interest margin benefited from $423 thousand, or 3 basis points, of accelerated net deferred fee amortization associated with PPP loans that were forgiven by the Small Business Association ("SBA") in the fourth quarter of 2020.  Linked quarter changes included:

• Average interest-earning assets decreased by $82 million, largely due to a decrease of $71 million in average loans. The yield on interest-earning assets for the fourth quarter was 2.92%, down by 6 basis points from the preceding quarter, reflecting the impact of lower market interest rates.
• Average interest-bearing liabilities decreased by $90 million, resulting from a decrease of $199 million in average wholesale funding balances, partially offset by an increase of $110 million in average in-market deposits. The cost of interest-bearing liabilities for the fourth quarter of 2020 was 0.67%, down by 18 basis points from the preceding quarter, reflecting the impact of lower market interest rates.

Noninterest Income
Noninterest income totaled $27.7 million for the fourth quarter of 2020, up by $2.3 million, or 9%, from the third quarter of 2020.  Included in other noninterest income for the fourth quarter of 2020 was a gain of $1.4 million associated with the sale of our limited partnership interest in a low-income housing tax credit investment.  Excluding this gain, noninterest income totaled $26.3 million, up by $859 thousand, or 3%, from the third quarter of 2020.  Other linked quarter changes included:

• Mortgage banking revenues totaled $14.1 million for the fourth quarter of 2020, up by $1.7 million, or 14%, from the third quarter of 2020, with a decrease in realized gains offset by an increase in unrealized gains. Net realized gains decreased on a linked quarter basis, reflecting lower sales volume partially offset by a higher sales yield. Mortgage loans sold to the secondary market amounted to $318 million in the fourth quarter of 2020, down by $36 million, or 10%, from the preceding quarter. Net unrealized gains increased on a linked quarter basis, reflecting an increase in the fair value of mortgage loan commitments as of December 31, 2020.
  
  Wealth management revenues amounted to $9.2 million in the fourth quarter of 2020, up by $252 thousand, or 3%, on a linked quarter basis due to an increase in asset-based revenues of $280 thousand, or 3%.
  
  
• Wealth management AUA amounted to $6.9 billion at December 31, 2020, up by $471 million, or 7%, from September 30, 2020.  The increase reflected net investment appreciation of $540 million, partially offset by net client asset outflows of $69 million in the fourth quarter of 2020.  The average balance of AUA for the fourth quarter of 2020 increased by approximately $213 million, or 3%, from the average balance for the preceding quarter.
  
  
• Loan related derivative income totaled $173 thousand in the fourth quarter of 2020, down by $1.1 million from the preceding quarter, reflecting lower volume of commercial borrower interest rate swap transactions.

Noninterest Expense
Noninterest expense totaled $34.1 million for the fourth quarter of 2020, up by $1.8 million, or 5%, from the third quarter of 2020.  Included in noninterest expense for the fourth quarter of 2020 was debt prepayment penalty expense of $1.4 million, resulting from paying off higher-yielding FHLB advances in the fourth quarter of 2020.  Excluding the debt prepayment penalty expense, noninterest expense totaled $32.7 million, up by $352 thousand, or 1%, from the third quarter of 2020.

Salaries and employee benefits expense, our largest noninterest expense, amounted to $22.1 million for the fourth quarter of 2020, up by $183 thousand, or 1%, from the preceding quarter.  The remaining increase in noninterest expense reflects modest changes across a variety of other noninterest expense categories, including outsourced services, legal, audit and professional fees, advertising and promotion and other expenses.

Income Tax
Income tax expense totaled $5.5 million for the fourth quarter of 2020, up by $383 thousand from the preceding quarter, largely due to a higher level of pre-tax income.  The effective tax rate for the fourth quarter of 2020 was 22.9%, compared to 21.9% in the preceding quarter.  Based on current federal and applicable state income statutes, the Corporation currently expects its full-year 2021 effective tax rate to be approximately 22.0%.

Investment Securities
The securities portfolio totaled $895 million at December 31, 2020, down by $19 million, or 2%, from September 30, 2020, due to routine pay-downs on mortgage-backed securities and calls of debt securities.  These decreases were partially offset by purchases of U.S. government agency and U.S. government-sponsored debt securities, including mortgage-backed securities.  Fourth quarter 2020 purchases totaled $142 million, with a weighted average yield of 1.64%.  Securities represented 16% of total assets at both December 31, 2020 and September 30, 2020.

Loans
Total loans amounted to $4.2 billion at December 31, 2020, down by $86 million, or 2%, from the end of the preceding quarter.  Linked quarter changes included:

• Commercial loans decreased by $38 million, or 2%, from September 30, 2020. In the fourth quarter of 2020, payoffs and pay-downs amounted to approximately $105 million and included $18 million of PPP loans that were forgiven by the SBA.
• Residential real estate loans decreased by $39 million, or 3%, from September 30, 2020, reflecting increased payoff and refinancing activity.
• The consumer loan portfolio decreased by $9 million, or 3%, from the balance at September 30, 2020.

Deposits and Borrowings
Total deposits amounted to $4.4 billion at December 31, 2020, up by $93 million, or 2%, from the end of the preceding quarter.  Included in total deposits are out-of-market wholesale brokered time deposits, which increased by $7 million, or 1%, from September 30, 2020.  Excluding wholesale brokered time deposits, in-market deposits at December 31, 2020 were up by $85 million, or 2%, from the end of the preceding quarter.

Federal Home Loan Bank advances totaled $594 million at December 31, 2020, down by $120 million from September 30, 2020.  There were no Paycheck Protection Program Liquidity Facility ("PPPLF") borrowings outstanding at December 31, 2020, compared to $106 million at September 30, 2020.

Asset Quality
Nonperforming assets amounted to $13.2 million at December 31, 2020, down by $1.5 million from the end of the preceding quarter.  Total nonaccrual loans amounted to $13.2 million, or 0.31% of total loans, at December 31, 2020, compared to $14.7 million, or 0.34% of total loans, at September 30, 2020.

Total past due loans amounted to $12.4 million, or 0.30% of total loans, at December 31, 2020, compared to $10.4 million, or 0.24% of total loans, at September 30, 2020.  The $2.0 million increase in past due loans was concentrated in residential real estate loans.

Total troubled debt restructured ("TDR") loans amounted to $15.7 million as of December 31, 2020, up by $7.1 million from September 30, 2020, largely due to restructurings of two commercial and industrial loan relationships that did not qualify for TDR accounting relief.

The allowance for credit losses ("ACL") on loans amounted to $44.1 million, or 1.05% of total loans, at December 31, 2020, compared to $42.6 million, or 1.00% of total loans, at September 30, 2020.  The ACL on unfunded commitments, included in other liabilities on the Consolidated Balance Sheets, amounted to $2.4 million at December 31, 2020 as compared to $2.2 million, at September 30, 2020.

In the fourth quarter of 2020, a provision for credit losses of $1.8 million was charged to earnings, compared to $1.3 million in the preceding quarter.  In the fourth quarter of 2020, net charge-offs of $118 thousand were recognized, compared to $96 thousand in the preceding quarter.

Capital and Dividends
Total shareholders' equity was $534.2 million at December 31, 2020, up by $6.5 million from September 30, 2020.  This increase included net income of $18.6 million, which was partially offset by $9.1 million in dividend declarations and a charge of $3.9 million to the accumulated other comprehensive income component of shareholders' equity associated with the annual remeasurement of pension plan liabilities. This charge was largely due to a decline in the discount rate used to measure the present value of pension plan liabilities as a result of a reduction in market interest rates in 2020.

Capital levels at December 31, 2020 exceeded the regulatory minimum levels to be considered well capitalized, with a total risk-based capital ratio of 13.51% at December 31, 2020, compared to 13.09% at September 30, 2020.

Book value per share amounted to $30.94 at December 31, 2020, compared to $30.57 at September 30, 2020.

The Board of Directors declared a quarterly dividend of 52 cents per share for the quarter ended December 31, 2020, representing an increase of 1 cent per share from the preceding quarter.  The dividend was paid on January 8, 2021 to shareholders of record on January 4, 2021.

Conference Call
Washington Trust will host a conference call to discuss its fourth quarter results, business highlights and outlook on Thursday, January 28, 2021 at 8:30 a.m. (Eastern Time).  Individuals may dial in to the call at 1-888-243-4451.  An audio replay of the call will be available, shortly after the conclusion of the call, by dialing 1-877-344-7529 and entering the Replay PIN Number 10151312; the audio replay will be available through February 4, 2021.  Also, a webcast of the call will be posted in the Investor Relations section of Washington Trust's web site, http://ir.washtrust.com, and will be available through March 31, 2021.

Background
Washington Trust Bancorp, Inc. is the parent of The Washington Trust Company.  Founded in 1800, Washington Trust is the oldest community bank in the nation, the largest state-chartered bank headquartered in Rhode Island and one of the Northeast's premier financial services companies.  Washington Trust offers a full range of financial services, including commercial banking, mortgage banking, personal banking and wealth management and trust services through its offices located in Rhode Island, Connecticut and Massachusetts.  The Corporation's common stock trades on NASDAQ under the symbol WASH.  Investor information is available on the Corporation's web site at http://ir.washtrust.com.

Forward-Looking Statements
This press release contains statements that are "forward-looking statements".  We may also make forward-looking statements in other documents we file with the SEC, in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees.  You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," "outlook," "will," "should," and other expressions that predict or indicate future events and trends and which do not relate to historical matters.  You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control.  These risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.

Some of the factors that might cause these differences include the following: the negative impacts and disruptions of the COVID-19 pandemic and measures taken to contain its spread on our employees, customers, business operations, credit quality, financial position, liquidity and results of operations; the length and extent of the economic contraction as a result of the COVID-19 pandemic; continued deterioration in local, regional, national or international economic conditions or conditions affecting the banking or financial services industries, financial capital markets and the customers and communities we serve; changes in consumer behavior due to changing political, business and economic conditions, including increased unemployment, or legislative or regulatory initiatives; the possibility that future credits losses are higher than currently expected due to changes in economic assumptions or adverse economic developments; volatility in national and international financial markets; reductions in net interest income resulting from interest rate volatility as well as changes in the balance and mix of loans and deposits; reductions in the market value or outflows of wealth management assets under administration; decreases in the value of securities and other assets; reductions in loan demand; changes in loan collectibility, increases in defaults and charge-off rates; changes in the size and nature of our competition; changes in legislation or regulation and accounting principles, policies and guidelines; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics; reputational risk relating to our participation in the Paycheck Protection Program and other pandemic-related legislative and regulatory initiatives and programs; and changes in the assumptions used in making such forward-looking statements. In addition, the factors described under "Risk Factors" in Item 1A of our Annual Report on  Form 10-K for the fiscal year ended December 31, 2019, as updated by our Quarterly Reports on Form 10-Q and other filings submitted to the SEC, may result in these differences. You should carefully review all of these factors and you should be aware that there may be other factors that could cause these differences. These forward-looking statements were based on information, plans and estimates at the date of this report, and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

Supplemental Information - Explanation of Non-GAAP Financial Measures
In addition to results presented in accordance with generally accepted accounting principles ("GAAP"), this press release contains certain non-GAAP financial measures.  Washington Trust's management believes that the supplemental non-GAAP information, which consists of measurements and ratios based on tangible equity and tangible assets, is utilized by regulators and market analysts to evaluate a company's financial condition and therefore, such information is useful to investors.  These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.  Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.