[Editor’s Note: Due to an editing error, the headline and lead paragraph of the print version of this story were incorrect. The Washington Trust Co. has consistently posted profits in the last several years, and the bank’s only setback in the last quarter was that, after steady year-over-year improvements every quarter, its profits for the first quarter of 2007 did not exceed those for the first quarter of 2006.]
For the second quarter in a row, Bank Rhode Island has reported a year-over-year gain in its earnings – this time of 9 percent – while The Washington Trust Co., which last quarter reported its first setback in years, posted a gain again, of 2.15 percent.
BankRI’s corporate parent, Bancorp Rhode Island Inc., reported Thursday that its net income for the second quarter was $2.2 million, up $188,000 from a year earlier. Diluted earnings per share were 44 cents, up from 41 cents a year earlier.
But the profit increase was due, in part, to the fact that in the second quarter of 2006, BankRI was unable to record about $148,000, net of tax, of Federal Home Loan Bank of Boston stock dividend income because the FHLB deferred its second-quarter dividend.
Still, BankRI did achieve growth on key fronts: Total deposits were $1.03 billion as of June 30, up $9.3 million from $1.02 billion at year-end 2006, and there was year-over-year growth in most major deposit categories and current-quarter growth of $16.8 million in demand deposits.
The commercial loan portfolio, a crucial part of BankRI’s business, also has kept growing, to $542.7 million in assets as of June 30, up 4 percent from year-end 2006 levels of $519.8 million.
BankRI’s net interest margin for the second quarter was 2.97 percent, unchanged from the first quarter.
In a news release, President and CEO Merrill W. Sherman said she was “pleased” with the quarterly results, which she said, “continue to reflect our focus on commercial growth and expense management.” She added: “We look forward to continuing to build value for all of our shareholders.”
Washington Trust, meanwhile, reported a second-quarter profit of $6.3 million, and total revenue of $26.7 million, a 2.7-percent increase.
The bank also announced that net income for the six months ended June 30 amounted to $12.3 million, virtually unchanged from the same year-ago period. On a diluted per-share basis, however, the 90 cents it earned for the first six months of 2007 was one cent better than during the same period a year before. Total revenue (net interest income plus net realized gains on securities plus other non-interest income) amounted to $53.5 million, an increase of 3.7 percent compared with January through June 2006.
The company’s earnings of 46 cents per diluted share for the second quarter fell in line with the consensus estimate of analysts who follow Washington Trust.
John C. Warren, Washington Trust chairman and CEO, credited gains made in commercial lending and wealth management for the earnings increase.
“Our performance is particularly noteworthy taking into consideration a slow growth economy and an unfavorable interest rate environment,” Warren said.
Non-interest income continued to be a growing part of Washington Trust’s revenue stream, totaling $12.5 million in the second quarter of 2007, an increase of $1.1 million, or 9.4 percent, from the same quarter a year ago.
David V. Devault, executive vice president and chief financial officer, said non-interest income grew to account for 44 percent of the $53.5 million in revenue in the first six months of 2007.
In contrast, net interest income totaled $14.8 million for the second quarter of 2007, down 2.4 percent from the second quarter a year ago. The net interest margin for the second quarter of 2007 was 2.75 percent, down six basis points from the first quarter and unchanged from the second quarter of 2006.
The bank attributed the second-quarter drop in net interest margin compared with the first quarter to an unexpected recovery of $322,000 in interest during the first quarter. Without that recovery, the net interest margin would have been identical in the two quarters.
Warren said in an interview last week that the housing market continues to dampen residential and consumer lending.
Residential mortgages decreased 0.9 percent since Dec. 31, and consumer loans were down 0.4 percent in the same period.
It’s not surprising lending in those categories is lagging because “people aren’t quite comfortable they can get value out of their home if they sell,” Warren said.
Meanwhile, Warren said, the opening of a lending office in Providence and an increased presence in Cranston with the opening of a second branch in that city in May – deposits in that branch already have reached $13 million, bank officials said – helped the bank boost commercial lending.
In the first six months of 2007, Washington Trust reported a 6-percent increase in commercial loans. “That’s good solid growth,” Warren said. “Our work in greater Providence is coming to fruition.”
Still, Warren expressed caution about commercial lending in the future, despite the recent positive numbers. “We’ve put some good credits on the books, financed some major real estate deals and continue to be one of the top SBA lenders in the state,” he said during an earnings conference call last week. “But the long-term demand is still in question. We’ll have to see how the economy performs.”
Wealth management services continue to play an increasing important role in creating revenue, as it has since Washington Trust acquired Weston Financial Group of Wellesley, Mass., in 2005.
Revenue from wealth management for the second quarter was $7.4 million, an increase of 11.2 percent from the same period in 2006. Assets under management totaled $3.9 billion, representing a 15-percent increase on the previous 12 months, the company said.
“The bulk of our client base is high net-worth individuals,” Warren said during the conference call in explaining the asset growth. “A lot of it is referrals. We do a good job and the referrals are coming in.”
In response to an analyst’s question, Warren said there were no plans to gain a foothold in Massachusetts through Weston Financial by adding branches in Wellesley. The bank is choosing instead to concentrate efforts in Rhode Island, with a second Warwick branch in the planning stages.
“That would be a surprise if that happened,” Warren said of a Wellesley expansion.
In closing remarks in the conference call, Warren indicated that bank officials are focusing more on any unpleasant surprises the economy may hold in the future.
“… We’re still very cautious about what’s ahead in the second half of the year and into ’08,” he said. “While we anxiously await some positive changes in the economy, and the yield curve for that matter, we obviously can’t predict what will happen.”
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