Washington Trust posts $12.8M profit in Q1, down 22% from a year ago

Updated at 3:30 p.m.

WASHINGTON TRUST BANCORP INC. posted 1Q 2023 earnings on April 24, 2023 / PBN FILE PHOTO/SCOTT KINGSLEY

WESTERLY – Washington Trust Bancorp Inc., the parent company of Washington Trust Co., on Monday reported a net income of $12.8 million in the first quarter of 2023, down 22% from the $16.5 million in profits it posted in the same period a year ago.

Earnings per diluted share were 74 cents, down from 95 cents in the first quarter of 2022.

The decline in profits came as interest expenses for banks have skyrocketed as the Federal Reserve has hiked interest rates in recent months to slow inflation.

Net interest margin – the difference between interest income the bank generated and the amount the bank paid out – was down slightly from 2.57% in the first quarter of 2022. The declines reflected higher funding costs, which outpaced increases in asset yields, Washington Trust stated.

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Washington Trust said interest income jumped by 78%, from $38.5 million in the first quarter of 2022 to $68.8 million in the quarter that just ended. Interest expenses for the first quarter were $31.6 million, up ninefold from $3.4 million a year ago.

“Our capital, liquidity and asset quality remain strong, yet first-quarter earnings were dampened by continued margin pressure resulting from rapidly rising funding costs and increased competition for deposits,” Edward O. Handy III, Washington Trust CEO and chairman, said in a statement. “We remain confident in our business model, the strength of our balance sheet, and our ability to manage our way through these challenging times.”

In-market deposits declined slightly year-over-year from $4.73 billion in the first quarter of 2022 to $4.66 billion in the first quarter of 2023. In-market deposits were approximately 58% retail and 42% commercial, with the average account holding about $37,000.

As expected, in-market deposits shifted from relatively lower-cost products to higher-cost time deposits in the first quarter of 2023, in no small part due brought on by aggressive hikes to the base rate by the Federal Reserve. 

To bolster its balance sheet this quarter, Washington Trust introduced a 5% certificate of deposit that has proved extremely popular. The bank initially offered the CD as a special promotion for an eight-month term but recently extended the period to 11 months. In addition, it is offering 3% on savings accounts with balances of $25,000 or less. Though a boon for consumers, those promotional rates may lead to further reduce profitability in the quarters ahead. 

Total deposits amounted to $5.3 billion in the first quarter, a slight increase from the $5.1 million reported a year prior.

Washington Trust’s uninsured deposits stood at $1.4 billion, or 26% of total deposits, at the end of the first quarter of 2023. Uninsured deposits included fully-collateralized preferred deposits of $319 million, or 6% of total deposits, bringing total unprotected deposits to $1.1 billion, or 20% of total deposits.

The bank disclosed it used wholesale funding in the first quarter to fund balance sheet growth. Wholesale brokered deposits amounted to $609 million and were up from $401.7 million in Q1 2022.

Washington Trust disclosed it has about $2 billion in loans outstanding to commercial real estate, a sector increasingly viewed by analysts at Moody’s as increasingly risky given rocketing interest rates, rising unemployment, and reduced credit availability. Washington Trust held $264 million in loans in the office category, or 14% of its commercial real estate portfolio. Washington Trust holds mostly Class A and B suburban space. The office market, especially Class B and C office towers, has been particularly hard hit post-pandemic as persistently high vacancy rates have led to declining property values. 

“As we’ve increased the average size of our real estate loans, we’ve been that much more careful about the borrowers with whom we do business,” said Ronald S. Ohsberg, the bank’s senior vice president and chief financial officer. “Most of our office space is two- story suburban, not 20-story urban.”

Noninterest income at Washington Trust slipped to $13.3 million for the first quarter of 2023, a decline from $17.1 million reported in 2022.

Total expenses – net interest expenses and noninterest expenses – totaled $65.1 million in the first quarter, up 88% from the same quarter in 2022.

Total revenue for the bank – net interest income and noninterest income – amounted to $50.5 million for the first quarter, down 3.3% from the $52.3 million brought in during same quarter a year ago.

Wealth management revenues fell 19% year over year, from $10.3 million reported in the first quarter of 2022 to $8.6 million reported in the first quarter of 2023.

Mortgage banking revenues totaled $1.2 million for the first quarter of 2023, a decline of more than 50% from the $3.5 million recorded in 2022.

Mortgage loans sold to the secondary market amounted to $29.3 million in the first quarter of 2023, a sharp decline from the $130.1 million sold in the first quarter of 2022.

Taking a huge hit was loan-related derivative income in the first quarter of 2023. That income stream, viewed by the bank as ancillary, plummeted $796,000, or 107%, from the preceding quarter, reflecting a collapse in the number of commercial borrower interest rate derivative transactions. Year-over-year, derivative income collapsed from $301 million in Q1 to recording a loss of $51 million.

Noninterest expense totaled $33.6 million for the first quarter of 2023 up slightly, year-over-year, from $31.2 million in Q1 2022.

Total loans amounted to $5.2 billion, up by $118 million, or 2%, from the end of the first quarter of 2022.

On April 19, Washington Trust celebrated the grand opening of its 25th brick-and-mortar branch in Barrington. The bank plans to open two additional branches this year the first in the Olneyville section of Providence and another in Smithfield.

(Update: Story updated through out)

Sam Wood is a staff writer at PBN. Contact him at Wood@PBN.com.

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