Customer-service model drives WashTrust profits

As competition for commercial business among banks in the region intensifies, Washington Trust Bancorp, parent of The Washington Trust Co., is sticking to a cautious, service-focused business model as it looks for growth opportunities – especially in Massachusetts and Connecticut.
“The local economy had continued to be slow to recover and the competition has heated up – this has made for a challenging environment,” Washington Trust Chairman and CEO Joseph J. MarcAurele said following release of the bank’s first quarter 2014 earnings on April 21.
“It’s not a secret that all the banks are trying to grow their loan base, particularly in commercial. We compete against other community banks and to a lesser extent the larger competitors. Every deal is contested, to an extent,” said MarcAurele. “It’s gotten more competitive in the past several months.” Speed to market and getting effective answers to customers are key elements of Washington Trust’s strategy, he said.
“What we’re cautious about is not structuring the loans so aggressively so that it might lead to write-offs or charge-offs down the line,” he said. “You have to compete from a pricing perspective, but you have to soundly underwrite loans, so you’re not put in a position where they come back and bite you with losses.”
That strategy has paid off so far, netting the Westerly-based bank a profit of $9.3 million in the first quarter 2014, an increase of 25.3 percent over earnings of $7.4 million during the same period last year.
Washington Trust’s total interest and noninterest income for first quarter 2014 was $48.7 million, up 16 percent from $42 million for first quarter 2013.
Diluted earnings per share were 55 cents for first quarter 2014, an increase on the 45 cents per diluted share a year ago.
The bank paid a quarterly dividend of 29 cents per share for first quarter 2014, a 2 cent increase over the previous quarter and the third consecutive quarterly dividend increase.
The bank also reported a gain of $6.3 million from the sale of the bank’s merchant-processing services to Vantiv during the first quarter of 2014 that was offset by a debt prepayment penalty of approximately the same amount.
In connection with the sale of merchant-processing services, the bank incurred divestiture costs of $355,000 or 1 cent per diluted share, in the first quarter of 2014. The bank also prepaid $99.3 million in Federal Home Loan Bank of Boston advances in March 2014, resulting in a debt prepayment penalty expense of $6.3 million. “The combined impact of the divestiture of this business line and the reduction in interest expense due to the change in borrowing transactions is expected to result in future ongoing pretax income enhancement of approximately $1 million in the remainder of this year, $1.3 million in 2015 and continuing benefits in future years,” said Washington Trust Vice Chairman, Secretary and Chief Financial Officer David V. Devault.
“Washington Trust posted another quarter of solid earnings,” said MarcAurele.
“Our retail banking continues to be a bright spot for us,” he said. “Demand deposit growth has increased 19 percent since first quarter 2013 and we hope to keep the growth momentum growing with the opening of our new branch in Johnston next month.”
The Johnston location will be the bank’s 19th branch
Asset quality continued to improve in the first quarter of 2014, with nonperforming assets declining 50.1 percent year over year to $14.3 million, as total past-due loans fell 31.2 percent to $18 million over the same time period.
Net interest margin for the first quarter of 2014 was 3.34 percent, an increase on the 3.32 percent recorded in the first quarter of 2013.
Wealth-management revenue was $8.1 million for the first quarter of 2014, an increase of 8 percent from $7.5 million a year earlier.
“Mortgage production did slow in the first quarter, due to several factors, not the least of which was a difficult winter, and higher interest rates,” said MarcAurele. “We’ve seen an uptick in mortgage activity in recent weeks and while we won’t reach the levels we saw during the refinancing boom, we’re optimistic that production will start to pick up, particularly in Massachusetts and Connecticut where we’ve added staff.”
“Probably 70 percent of our mortgages are outside of Rhode Island,” said Washington Trust President and Chief Operating Officer Edward O. Handy III. “The largest volume has been in the Greater Boston market, and the office we opened in Fairfield County, Conn. is starting to ramp up a bit.” •

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