ROE helps WashTrust stand out from rest

In a shifting banking landscape, with its kaleidoscope of mergers and acquisitions, name changes and ever-evolving strategies to increase market share and earnings, Washington Trust Bancorp Inc., parent of The Washington Trust Co., has a shareholder mix that’s typical for community banks but solid advances in profitability that help it stand out from competitors.
“Washington Trust is atypical in a very good way,” said Matt Breese, senior equity-research analyst for Stern Agee, which is based in Portland, Maine and covers 46 Northeast community banks.
“We’ve never been in a low-interest rate environment this long, so while asset yields for the banks are still falling in the broader industry, Washington Trust has other businesses, other than deposits or loans – it has wealth management that’s been a very strong driver for them,” said Breese. “The bigger banks usually offer this service – most community banks don’t offer it to the extent that Washington Trust does.
“Washington Trust is atypical in how profitable they are and how consistent they are, especially given their geography,” said Breese. “In all of New England, Rhode Island was the most impacted by falling housing prices and the state as a whole was impacted by that. You haven’t seen the recovery as you have in such areas as Boston.”
About 36 percent of Washington Trust stock is held by a handful of shareholders who own more than 5 percent, according to Securities and Exchange Commission filings. Most of them are institutional, and in the view of analysts, it’s a pretty typical lineup that doesn’t present any issues of concern for the bank’s leadership.
“I look at their shareholder list and it’s made up of a lot of the same names that form the lists of a lot of community banks,” said Breese.
T. Rowe Price owns 7.6 percent of the shares, BlackRock owns 5.8 percent and Champlain Investment Partners owns 5.3 percent of Washington Trust stock, according to SEC filings. “We invested in Washington Trust in 2008, right in the middle of the financial crisis because it was a well-run, kind of defensive bank,” said Chris Fortune, an analyst who covers community and regional banks for T. Rowe Price, who is based in Baltimore.“There are a number of community and regional banks that went out and made riskier loans, some construction-oriented loans, but Washington Trust stuck to finding a core of quality customers and doing well underwriting loans.”
A substantial portion of Washington Trust stock, 17.44 percent, is the combined holdings of David W. Wallace of Greenwich, Conn., who holds 11.93 percent of the company’s shares, in addition to 5.51 percent held by the Jean and David Wallace Foundation, according to SEC filings.
“It’s not totally unique for Washington Trust to have somebody, or a small foundation, own a pretty good stake in the bank,” said Breese. “We’re dealing with smaller market-cap names. In larger banks, no way could a community member take on a stake like David Wallace.”
The David Wallace holding “is a relatively long-term holding – it predates me,” said Washington Trust Chairman and CEO Joseph J. MarcAurele. “We have a very good relationship with David. He’s essentially an astute investor and he’s been supportive of management over time.”
Around 2004, Wallace’s holdings went over the 5 percent level and became reportable, said Washington Trust Vice Chairman, Secretary and Chief Financial Officer David Devault.
“He has told us that he likes our business model,” Devault said. Neither Wallace not a spokesman for the foundation could be reached for comment last week.
Damon DelMonte, equity research analyst at Keefe, Bruyette & Woods, said he’s known of David Wallace’s investment in Washington Trust for at least 10 years. “He’s been a silent shareholder and based on the performance of the stock price since his initial investment, he’s enjoying a nice return on his investment,” said DelMonte.
Overall, Washington Trust is a high-quality institution with a very strong management team, said DelMonte.
BlackRock and T. Rowe Price have held more than 5 percent of Washington Trust shares since 2011, according to SEC filings.
“Champlain is a more recent acquirer of Washington Trust stock,” said Devault. “I believe they’ve been acquiring for some time, but I believe it was during 2013 they went over that 5 percent level and triggered the filing. We view it as a good sign, in the sense that apparently they find Washington Trust to be a good investment.”
The institutional ownership of Washington Trust is 52.39 percent, in line with the typical 45-55 percent institutional ownership of a bank of its kind, said Mark Fitzgibbon, principal and director of research for Sandler O’Neill + Partners.
“It’s fairly typical for a community bank to have a shareholder base like the one Washington Trust has,” said Fitzgibbon.
“There are several large quantitative funds that own the stock. Washington Trust is a member of the Russell 3000, so anybody that has funds that are benchmarked to the Russell 3000 would have to own some of their stock,” he said. “Washington Trust is obviously a high-performance company, so it’s not surprising there aren’t activist shareholders in their shareholder base.”
“The most important part of profitability is measured by return on equity and Washington Trust’s return on equity dwarfs [that of] most banks,” said Fitzgibbon. “They’re consistently generating ROE greater than 12 percent when most of the banks in the country are generating ROE of less than 10 percent.” •

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