Amid record profits, WashTrust revises pension plan

Even as it posted a record quarterly profit of $10 million for the third quarter, Washington Trust Bankcorp Inc., parent company of The Washington Trust Co., is confronting the sluggish economy and competitive market. The effort includes a long-term plan to revise company pensions and expanding business with nonprofits, particularly hospitals and other medical practices.
“This record performance reflects our continued success at managing the corporation during challenging economic times,” Washington Trust Chairman, President and CEO Joseph J. MarcAurele said in an Oct. 22 conference call discussing the Westerly-based bank’s quarterly earnings. “Our management team focused on making strategic decisions that will help us grow the company efficiently and effectively, while continuing to generate a solid return for our shareholders.”
The bank’s third-quarter 2013 net income of $10 million, or 59 cents per diluted share, represented an 11.9 percent increase over the $8.9 million, or 54 cents per diluted share, posted in the third quarter 2012.
The profit record came on total interest and noninterest income of $46.8 million, a 0.8 percent decline from the 2012 third quarter.
Return on average equity was 12.82 percent for third quarter 2013, compared with 12.02 percent a year earlier. Return on average assets was 1.29 percent in third quarter 2013, compared to 1.17 percent in the third quarter last year. Net interest margin increased slightly to 3.29 percent in the third quarter 2013, compared with 3.26 percent in the previous quarter.
In noninterest expenses, Washington Trust reduced salaries and employee benefits in the third quarter to $14.6 million, down from $15.2 million in the third quarter of 2012.
“The real reduction quarter-over-quarter in salaries and benefits had to do with reduced commission payments to mortgage originators,” Marc-Aurele said.
The bank’s 50 mortgage originators in two offices in Connecticut, two in Massachusetts and three in Rhode Island are paid primarily on commission, so as the volume of mortgage origination has declined, that expense has decreased, said Marc-Aurele.
“We still originated quite a few mortgages, just not as much as we had been doing during what was a refinance boom that lasted almost two years,” MarcAurele said. “As rates bumped up a bit, origination volume has fallen off to some extent.
“The mortgage business for purchased homes is improving somewhat, clearly better in the Greater Boston market, where we have a fairly big presence, and the Fairfield County, Conn. area than in Rhode Island,” said MarcAurele. A smaller portion of the reduction in salaries and benefits is a result of changes in the bank’s defined-benefit-pension plan.
“We didn’t cut pensions. We made a decision to grandfather people into the pension plan, but stop benefits at the end of 10 years,” MarcAurele said.
“What that has the effect of doing is reduce our ongoing pension cost, because it’s not going to go on for as long as we had initially planned,” Marc-Aurele said.
The amendments to the pension plan were made in September with the transition period ending in December 2023, Washington Trust Vice Chairman, Secretary and Chief Financial Officer David V. Devault said on the conference call.
The transitional period “provides for a pretty-significant planning period for employees so they can start to build up a 401(k) or do additional things to make sure that they’re OK during retirement,” said MarcAurele.
An area of opportunity for Washington Trust is in Rhode Island’s nonprofit sector, MarcAurele said.
“We have a particular expertise with financing health care nonprofits – the hospitals, various medical practices that are nonprofit-based, and also some of the larger nonprofit businesses in Rhode Island – that has been a market that’s been pretty robust for us,” Marc-Aurele said.
Washington Trust has established banking relationships for lending and deposit-gathering with some community health care nonprofits supported primarily through government funding, for example, in Woonsocket and Pawtucket, he said.
The bank’s total assets in the third quarter 2013 increased to $3.13 billion from $3.05 billion a year earlier, driven by increases in commercial, residential real estate and consumer loans, which increased by nearly $100 million to $2.35 billion. The increase in loans was more than matched by a $200 million increase in total deposits on the year to $2.5 billion.
In addition to announcing the appointment of Edward “Ned” Handy III as president and chief operations officer during the third quarter, the bank declared and paid a dividend of 26 cents per share, a 1 cent increase over the dividend paid in the previous quarter and the second dividend increase in the last year.
As for employment, the goal is to hold steady, MarcAurele said.
“Our desire and aim is to not have layoffs – I don’t anticipate that,” said MarcAurele. •

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