WESTERLY – The Washington Trust Co. ranked among the nation’s top 50 mid-sized banks, based on a three-year rolling average of earnings performance, according to the latest annual ranking by American Banker magazine.
Washington Trust ranked No. 32 among 237 U.S. banks with assets between $2 billion and $10 billion.
It was the only Rhode Island bank and among seven in New England on this year’s list. Beacon Bancorp., based in nearby Taunton ranked No. 192 this year.
The rankings were based on each bank’s three-year average return on equity, a key profitability ratio that investors use to measure the amount of a company’s income that is returned as shareholder equity.
Washington Trust had an average return on equity of 11.74 percent from 2015 through 2017. It was the fifth year in a row that Washington Trust made it into the top 50 performing mid-tier banks in the U.S.
In comparison, Beacon’s three-year average return was 6.07 percent, according to the magazine’s June edition.
Washington Trust’s performance earnings in recent years have been helped by its various lines of business, Mark K.W. Gim, the bank’s president and chief operating officer, told Providence Business News.
“We have a very diverse range of businesses,” Gim said. “Not only do we focus on core deposit gathering and lending, we have a $6 billion wealth management business and a strong mortgage banking business.”
Like most banks, Gim said, Washington Trust expects even higher performance earnings in 2018 as corporate tax cuts championed by the Trump administration go into effect.
Overall, the 237 mid-tier banks that qualified for American Banker’s ranking had a median efficiency ratio of 59.6 percent, up 211 basis points from the previous year, according to an analysis done for the magazine by Capital Performance Group.
Efficiency ratio is typically used to measure how well a company uses its assets and liabilities internally. The ratio is used by analysts to measure the performance of a company’s short-term or current performance.
Washington Trust’s three-year average efficiency ratio, at just under 55 percent, was close to the median for mid-tier banks.
However, trouble may be looming for the industry, the magazine noted, as many mid-sized banks aren’t growing deposits fast enough to keep up with their loan growth. The ratio of net loans to total deposits rose to a median of 93.2 percent, up 150 basis points from a year earlier, Capital Performance Group found.
Washington Trust’s loan-to-deposits ratio was somewhat high at 104.07 percent. Beacon’s was slightly lower at 100.63 percent. Overall, there were more than 40 banks on the list that posted ratios above 100 percent, meaning didn’t have enough deposits to fund all their loans.
Gim said Washington Trust’s ratio, despite being over 100 percent, isn’t that high now for New England banks, which have been buoyed by a robust housing market in many locations. Still, he said, Washington Trust has avoided being “overly aggressive” during the housing price surge to avoid excessive liabilities should the market falter.
Meanwhile, Capital Performance Group found that mid-tier banks nationwide had 1,202 fewer branches by the end of last year, compared with three years earlier, a 10 percent drop. And having fewer branches, as more customers favor digital banking and banks seek to control costs, often can result in a slowdown in deposit growth, and core deposits offer the cheapest, most stable source of funding for bank loans, the magazine noted.
Unlike many banks, Gim said, Washington Trust has avoided branch closings by limiting its retail operations to 21 locations in Rhode Island and one in Connecticut.
“We have more branches than we did several years ago,” he said, “although we’re not opening branches at a rapid pace.”
“We’ve been very careful about picking good spots,” he added. “Fewer people are going into branches than they did 20 years ago, but we believe they’re still a place where people” prefer to handle financial matters.
Scott Blake is a PBN staff writer. Email him at Blake@pbn.com.