The state’s two largest independent banks last week reported their 2006 financial results, offering sharply different outlooks: While The Washington Trust Co. reported an 8.7-percent year-to-year gain in earnings, Bank Rhode Island reported a 19-percent drop.
Westerly-based Washington Trust reported $25 million in net income for the year, or $1.82 per diluted share. The bank grew both its interest and non-interest income, but it was the latter that was by far the strongest, with a 36-percent gain for the year, excluding profit generated from the trading of securities.
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Providence-based BankRI reported $7.7 million in net income for the year, or $1.57 per diluted share. Far more dependent on interest income than Washington Trust, the bank struggled with a shrinking interest margin, but it also grew its commercial loan portfolio by 19 percent, a feat that President and CEO Merrill W. Sherman called “nothing short of extraordinary.”
But while banks across the nation have seen their profits squeezed by interest rate trends, for BankRI the stakes are particularly high. For the last several months, the company has been under fire from PL Capital LLC, an Illinois investment firm that is now expected to seek two seats on the board this spring. In response, the bank has reduced expenses and cut some jobs in the third quarter.
Sherman spoke about those efforts on a conference call with investors last Thursday.
“We are … a young company, and it is not atypical for our expenses to run ahead of revenues as we grow into an infrastructure,” Sherman said. “That said, we have slowed the expense growth rate, and in fact are actively continuing to look for opportunities to lose expenses. That is uppermost in our mind.”
But the pressure has continued. PL Capital has increased its stake in BankRI to 8 percent, up from 7.7 percent last summer, Sherman said. Principals Richard Lashley and John Palmer also sought to join the board of directors, but on Thursday, the board announced it was denying that request and nominating an all-local slate of directors. After the conference call, Palmer issued a press release saying he had been refused an opportunity to ask questions during the call.
For the fourth quarter, BankRI reported net income of $2.5 million, up 14 percent from the same period last year. Linda H. Simmons, treasurer and chief financial officer, noted that net income for the full 2006 had been negatively affected by an after-tax charge of $558,000 taken in the third quarter after an investment portfolio restructuring.
Along with the growth of the commercial loan portfolio, valued at $519 million as of Dec. 31, BankRI reported a 7-percent gain in its consumer loan portfolio, to $220.6 million as of Dec. 31.
The bank’s net interest margin for the fourth quarter was 2.91 percent, down from 3.08 percent in the third quarter. Net interest margin for the year was 3.06, down from 3.35 percent in 2005.
Total assets reached $1.48 billion in 2006, a 3-percent increase from 2005, while total deposits grew to $1.02 billion, with demand deposits growing 8 percent and other deposits, 3 percent.
Sherman said she was pleased with that rate of deposit growth, given the challenging rate environment in recent months. But Simmons said the bank doesn’t anticipate opening the two branches it had been planning for Pawtucket and Narragansett.
“We still believe these are great locations for Bank Rhode Island and hope to open them soon,” Simmons said.
Washington Trust, meanwhile, with no shareholder challenges and more diversified revenue sources, was able to report another strong year when it announced its results last Wednesday. Net income in the fourth quarter was $6.2 million, or 45 cents per diluted share, roughly the same as a year earlier, but the 8.7-percent gain for the year put it ahead of its peers.
“Washington Trust posted solid earnings in 2006, in light of a challenging interest-rate environment and extremely competitive market,” said John C. Warren, the bank’s chairman and CEO. “We continue to gain market share, attract new clients and build existing relationships by focusing on service excellence and offering superior retail, business and wealth management products.”
Like BankRI, Washington Trust struggled with interest rate trends. Its net interest margin for the year was 2.8 percent, a tiny improvement from 2.79 percent in 2005, and though the bank’s loan portfolio grew by 4.1 percent, to a total of $1.46 billion, net interest income rose by only 1.3 percent, to $61.5 million, and it was actually down slightly for the fourth quarter.
Commercial loan growth was also relatively strong for the Westerly bank, 5.9 percent for the year, compared with only a 1-percent gain in residential real estate loans. Consumer loans, which make up only one-fifth of the loan portfolio, grew fastest, by 7.4 percent.
Non-interest income continued to be a major source of Washington Trust’s strength. Not only did the August 2005 acquisition of Weston Financial continue to make its mark, but wealth management revenue in general has grown steadily, with a 15-percent gain in the fourth quarter, to $6.7 million. Assets under administration totaled $3.7 billion as of Dec. 31, up 13 percent from a year earlier.
The bank also reported substantial growth in its credit card merchant processing business, with processing fees up 19 percent – though costs to the bank also rose with the added transaction volume.
Detailed financial information for BankRI is available at www.bankri.com, and for Washington Trust, at www.washtrust.com.
