Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
WASH > SEC Filings for WASH > Form 10-Q on 8-Aug-2013All Recent SEC Filings

Show all filings for WASHINGTON TRUST BANCORP INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for WASHINGTON TRUST BANCORP INC


8-Aug-2013

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Corporation's consolidated financial statements, and notes thereto, included in the Annual Report on Form 10-K for the year ended December 31, 2012, and in conjunction with the condensed unaudited consolidated financial statements and notes thereto included in Item 1 of this report. Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results for the full-year ended December 31, 2013 or any future period.

Forward-Looking Statements
This report contains statements that are "forward-looking statements." We may also make written or oral forward-looking statements in other documents we file with the SEC, in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees. You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," "outlook," "will," "should," and other expressions that predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Corporation. These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Corporation to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.

Some of the factors that might cause these differences include the following:
continued weakness in national, regional or international economic conditions or conditions affecting the banking or financial services industries or financial capital markets, volatility and disruption in national and international financial markets, additional government intervention in the U.S. financial system, reductions in net interest income resulting from interest rate volatility as well as changes in the balance and mix of loans and deposits, reductions in the market value of wealth management assets under administration, changes in the value of securities and other assets, reductions in loan demand, changes in loan collectibility, default and charge-off rates, changes in the size and nature of the Corporation's competition, changes in legislation or regulation and accounting principles, policies and guidelines and changes in the assumptions used in making such forward-looking statements. In addition, the factors described under "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as updated by our Quarterly Reports on Form 10-Q and other filings submitted to the SEC, may result in these differences. You should carefully review all of these factors and you should be aware that there may be other factors that could cause these differences. These forward-looking statements were based on information, plans and estimates at the date of this report, and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

Critical Accounting Policies and Estimates Accounting policies involving significant judgments, estimates and assumptions by management, which have, or could have, a material impact on the carrying value of certain assets and impact income are considered critical accounting policies. The Corporation considers the following to be its critical accounting policies: allowance for loan losses, review of goodwill and intangible assets for impairment and valuation of investment securities for impairment. There have been no significant changes in the Corporation's critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Recently Issued Accounting Pronouncements See Note 2 to the Unaudited Consolidated Financial Statements for details of recently issued accounting pronouncements and their expected impact on the Corporation's consolidated financial position, results of operations or cash flows.

Overview
Washington Trust offers a comprehensive product line of financial services to individuals and businesses including commercial, residential and consumer lending, retail and commercial deposit products, and wealth management services through its offices in Rhode Island, eastern Massachusetts and Connecticut, ATMs, and its Internet website at www.washtrust.com.

Our largest source of operating income is net interest income, the difference between interest earned on loans and securities and interest paid on deposits and other borrowings. In addition, we generate noninterest income from a number of sources, including wealth management services, loan sales and commissions on loans originated for others, merchant credit card processing and deposit services and bank-owned life insurance ("BOLI"). Our principal noninterest expenses include salaries and employee benefits, occupancy and facility-related costs, merchant processing costs, technology and other administrative expenses.


Our financial results are affected by interest rate volatility, changes in economic and market conditions, competitive conditions within our market area and changes in legislation, regulation and/or accounting principles. While the regional economic climate has been improving in recent quarters, uncertainty surrounding future economic growth, consumer confidence, credit availability and corporate earnings remains. Management believes that overall credit quality continues to be affected by weaknesses in national and regional economic conditions, including high unemployment levels, particularly in Rhode Island.

Washington Trust opened its fourth mortgage lending office in March 2012 and a new full-service branch in July 2012. We believe the Corporation's financial strength and stability, capital resources and reputation as the largest independent bank headquartered in Rhode Island, were key factors in the expansion of our retail and mortgage banking business and in delivering solid results in the second quarter of 2013. We will continue to leverage our strong, statewide brand to build market share in Rhode Island whenever possible and bring select business lines to new markets with high-growth potential while remaining steadfast in our commitment to provide superior service. In the first quarter of 2014, Washington Trust plans to open a new full-service branch in Johnston, Rhode Island, in Providence County. This branch will be the Washington Trust's nineteenth branch office and its first in Johnston.

Composition of Earnings
Net income for the second quarter of 2013 amounted to $9.0 million or 54 cents per diluted share, compared to $8.7 million, or 53 cents per diluted share, reported for the second quarter of 2012. The returns on average equity and average assets for the second quarter of 2013 were 11.84% and 1.18%, respectively, compared to 11.98% and 1.16%, respectively, for the same quarter in 2012.

For the six months ended June 30, 2013, net income amounted to $16.4 million, or 99 cents per diluted share, compared to $17.2 million, or $1.04 per diluted share, reported for the same period in 2012. The returns on average equity and average assets for the first six months of 2013 were 10.88% and 1.08%, respectively, compared to 11.92% and 1.13%, respectively, for the same period in 2012.

2013 results included the following transactions, which resulted in a reduction of 2 cents and 13 cents per diluted share in the three and six months ended June 30, 2013, respectively:
During the second quarter of 2013, certain junior subordinated debentures were redeemed and as a result, unamortized debt issuance costs of $244 thousand were expensed and classified as interest expense.

Expense of $270 thousand, classified in salaries and employee benefits expense, was recognized in the second quarter of 2013 for executive severance related matters.

Other-than-temporary impairment ("OTTI") charges of $2.8 million were recognized in the first quarter of 2013. There were no such charges recognized in the second quarter of 2013. See additional discussion in the "Financial Condition" section under the caption "Securities" below.

2012 results included the following transactions, which resulted in a reduction of 2 cents and 5 cents per diluted share in the three and six months ended June 30, 2012, respectively:
Balance sheet management transactions were executed in the second quarter of 2012, consisting of the sale of mortgage?backed securities and the prepayment of FHLBB advances. As a result, net realized gains on securities of $217 thousand and debt prepayment penalty expense of $961 thousand were recognized in the second quarter of 2012.

A gain of $348 thousand was recognized on the sale of bank property in the second quarter of 2012 and was classified in other income.

OTTI charges of $209 thousand were recognized in the first quarter of 2012. There were no such charges recognized in the second quarter of 2012.

A charge of $131 thousand, classified in net occupancy expense, was recognized in the second quarter of 2012 due to the termination of an operating lease associated with the closure of a branch in September 2012.

Excluding the above mentioned transactions, results for the first six months of 2013 primarily reflected continued solid mortgage banking results (net gains on loan sales and commissions on loans originated for others), higher wealth management revenues and a lower provision for loan losses, partially offset by increases in salaries and employee benefit costs.

Net interest income for the three and six months ended June 30, 2013 amounted to $22.4 million and $44.9 million, respectively, essentially level with the amounts recognized in the same periods in 2012. The net interest margin (fully taxable equivalent net interest income as a percentage of average interest-earnings assets) for the three and six months ended June 30, 2013 was 3.26% and 3.29%, respectively, compared to 3.30% and 3.28% for the same periods a year earlier. The above mentioned debt issuance costs expensed and classified as interest expense resulted in a reduction of 4 basis points and 2 basis points, respectively, in the


net interest margin for the three and six months ended June 30, 2013. See additional discussion in the "Results of Operations" section under the caption "Net Interest Income" below.

The loan loss provision charged to earnings for the three and six months ended June 30, 2013 amounted to $700 thousand and $1.3 million, respectively. Comparable amounts for the same periods in 2012 amounted to $600 thousand and $1.5 million, respectively. Net charge-offs for second quarter and first half of 2013 totaled $4.0 million and $4.3 million, respectively, compared to $197 thousand and $854 thousand, respectively, for the same periods a year earlier. The higher level of net charge?offs in 2013 was due to a $4.0 million charge-off recognized in the second quarter on one commercial mortgage loan. See additional discussion in the "Results of Operations" section under the caption "Provisions and Allowance for Loan Losses" below.

Revenue from wealth management services is our largest source of noninterest income. For the three and six months ended June 30, 2013, wealth management revenues totaled $7.9 million and $15.4 million, respectively, up by 6% and 5%, respectively, from the same periods in 2012 due to an increase in asset?based wealth management revenues. Wealth management assets under administration totaled $4.43 billion at June 30, 2013, compared to $4.20 billion at December 31, 2012 and $4.08 billion at June 30, 2012, largely reflecting net investment appreciation and income.

Mortgage banking revenues, which are dependent on mortgage origination volume and are sensitive to interest rates and the condition of the housing markets, amounted to $3.5 million and $7.7 million, respectively, for the three and six months ended June 30, 2013, up by 16% and 25%, respectively, from the same periods in 2012. Residential real estate loans sold to the secondary market, including brokered loans, totaled $132.2 million and $285.0 million, respectively, for the three and six months ended June 30, 2013. Comparable amounts for the same periods in 2012 were $118.7 million and $244.4 million, respectively. While these amounts have increased year over year, in the latter portion of the second quarter of 2013 mortgage loan refinancing activity declined due to an increase in market interest rates.

Noninterest expenses for the three and six months ended June 30, 2013 amounted to $25.0 million and $49.2 million, respectively, down by 1% and up by 1%, respectively, from the comparable 2012 periods. Included in noninterest expenses were the above mentioned executive severance expenses in 2013 and the debt prepayment penalty expense and lease termination charge in 2012. See additional discussion in the "Results of Operations" section under the caption "Noninterest Expenses" below.

Income tax expense amounted to $4.1 million and $7.5 million, respectively, for the three and six months ended June 30, 2013. Comparable amounts for the same periods a year earlier were $4.0 million and $7.9 million, respectively. The effective tax rate for the second quarter of 2013 was 31.4%, down from 31.7% for the the second quarter of 2012. For the first six months of 2013 the effective tax rate was 31.5%, down slightly from 31.6% for the same period in 2012.

Results of Operations
Segment Reporting
Washington Trust manages its operations through two business segments, Commercial Banking and Wealth Management Services. Activity not related to the segments, such as the investment securities portfolio, wholesale funding activities, income from BOLI and administrative expenses not allocated to the business lines are considered Corporate. The Corporate unit also includes the residual impact of methodology allocations such as funds transfer pricing offsets. Methodologies used to allocate income and expenses to business lines are periodically reviewed and revised. See Note 14 to the Unaudited Consolidated Financial Statements for additional disclosure related to business segments. The Corporate unit's net income for the three and six months ended June 30, 2013 decreased by $13 thousand and $982 thousand, respectively, compared to the same periods a year ago. Included in the Corporate unit's results were the the write-off of unamortized debt issuance cost in connection with the redemption of junior subordinated debentures, the net realized gains on securities and debt prepayment penalties associated with balance sheet management transactions and the OTTI charges recognized on investment securities. See additional disclosure in the "Overview" section under the caption "Composition of Earnings."

The Commercial Banking segment reported net income of $6.7 million and $13.3 million, respectively, for the three and six months ended June 30, 2013, compared to $6.6 million and $13.2 million for the same periods in 2012. Net interest income for this segment for the three and six months ended June 30, 2013 increased by $179 thousand and $62 thousand, respectively, from the same periods in 2012. The provision for loan losses for the second quarter of 2013 increased by $100 thousand, compared to the same quarter a year ago. For the six months ended June 30, 2013, the provision for loan losses declined by $200 thousand from the comparable 2012 period. Noninterest income derived from the Commercial Banking segment totaled $8.0 million and $15.9 million, respectively, for the three and six months ended June 30, 2013, up by $411 thousand or 5%, and $1.7 million, or 12%, from the comparable 2012 periods, reflecting higher mortgage banking revenues. Commercial Banking noninterest


expenses for the three and six months ended June 30, 2013 were up by $410 thousand, or 3%, and $780 thousand, or 3%, respectively, from the same periods in 2012, with increases in salaries and employee benefit expenses, largely due to higher staffing levels to support growth and higher levels of business development based compensation in mortgage banking.

The Wealth Management Services segment reported net income of $1.6 million and $2.8 million, respectively, for the three and six months ended June 30, 2013, compared to $1.5 million and $2.6 million, respectively, for the same periods in 2012. Noninterest income derived from the Wealth Management Services segment was $7.9 million and $15.4 million for the three and six months ended June 30, 2013, up by 6% and 5%, respectively, compared to the same periods in 2012, primarily due to an increase in asset-based wealth management revenues. Noninterest expenses for the Wealth Management Services segment totaled $5.3 million and $10.8 million, respectively, for the three and six months ended June 30, 2013, up by $189 thousand, or 4%, and $354 thousand, or 3%, respectively, from the same periods a year ago, largely reflecting an increase in salaries and employee benefit expenses due to higher levels of business development based compensation.

Net Interest Income
Net interest income continues to be the primary source of Washington Trust's operating income. Net interest income is affected by the level of interest rates, changes in interest rates and changes in the amount and composition of interest-earning assets and interest-bearing liabilities. Included in interest income are loan prepayment fees and certain other fees, such as late charges. The following discussion presents net interest income on a fully taxable equivalent ("FTE") basis by adjusting income and yields on tax-exempt loans and securities to be comparable to taxable loans and securities. For more information, see the section entitled "Average Balances / Net Interest Margin - Fully Taxable Equivalent (FTE) Basis" below.

FTE net interest income for the three and six months ended June 30, 2013 amounted to $22.9 million and $45.9 million, respectively, compared to $22.9 million and $45.8 million, respectively, for the same periods in 2012. The net interest margin was 3.26% and 3.29%, respectively, for the three and six months ended June 30, 2013, compared to 3.30% and 3.28%, respectively, for the same periods in 2012. During the second quarter of 2013, $10.3 million of junior subordinated debentures were redeemed and as a result, unamortized debt issuance costs of $244 thousand were expensed and classified as interest expense in the quarter. The impact of this item was an increase of 4 basis points and 2 basis points, respectively, in the cost of funds and a reduction of 4 basis points and 2 basis points, respectively, in the net interest margin for the three and six months ended June 30, 2013. The rate on this debt was approximately 5.69% at the time of redemption, which included the cost of a related interest rate swap that matured upon the redemption event.

While there has been growth in average loan balances, in the current historically low interest rate environment, market yields on new loan originations are below the average yield of the existing loan portfolio. Due to the combined effect of new loan growth and the runoff of higher yielding loan balances, we anticipate that interest rates on total earning assets will continue to decline. The impact of this trend is likely to exceed the benefit to be realized in reduced funding costs, with the resulting effect of modestly lower net interest margin results in the remaining quarters of 2013.

Average interest-earning assets for the three and six months ended June 30, 2013 were up by $26.5 million and $8.7 million, respectively, from the average balances for the same periods in 2012. Total average loans for the three and six months ended June 30, 2013 increased by $178.0 million and $168.9 million, respectively, compared to the average balances for the comparable 2012 periods, led by growth in the commercial loan portfolio. The yield on total loans for the three and six months ended June 30, 2013 decreased by 31 basis points and 30 basis points, respectively, from the comparable 2012 periods. These declines reflect the impact of a sustained low interest rate environment on loan yields.

Total average securities for the three and six months ended June 30, 2013 decreased by $163.4 million and $166.0 million, respectively, from the average balances for the same periods a year earlier, primarily due to principal payments received on mortgage-backed securities which were not reinvested in the securities portfolio. The FTE rate of return on securities for the three and six months ended June 30, 2013 increased slightly compared to the same periods in 2012, primarily reflecting maturities and pay-downs of lower yielding mortgage-backed securities.

Average interest-bearing liabilities for the three and six months ended June 30, 2013 decreased by $38.7 million and $49.9 million, respectively, from the comparable periods in 2012, reflecting declines in average FHLBB advance balances and average time deposits, offset in part by growth in balances of lower-cost deposit categories. The weighted average cost of funds for the three and six months ended June 30, 2013 declined by 22 basis points and 25 basis points, respectively, compared to the same periods in 2012, largely reflecting declines in the rate paid on time deposits. See additional discussion above regarding the impact of the second quarter 2013 redemption of $10.3 million of junior subordinated debentures.


The average balances of FHLBB advances for the three and six months ended June 30, 2013 were down by $167.4 million and $173.0 million, respectively, compared to the average balances for the same periods in 2012. The average rate paid on such advances for the three and six months ended June 30, 2013 increased slightly from the comparable periods in 2012. See additional discussion under "Sources of Funds" below.

Total average interest-bearing deposits for the three and six months ended June 30, 2013 increased by $131.1 million and $133.1 million, respectively, compared to the average balances for the same periods in 2012. This increase reflected growth in lower-cost deposit balances, partially offset by a decrease in time deposits. The average rate paid on interest-bearing deposits for the three and six months ended June 30, 2013 decreased by 11 basis points compared to the same periods in 2012, primarily due to declines in the rate paid on time deposits. The average balance of noninterest-bearing demand deposits for the three and six months ended June 30, 2013 increased by $44.7 million, or 14%, and $37.2 million, or 11%, respectively, compared to the average balances for the same period in 2012.

Average Balances / Net Interest Margin - Fully Taxable Equivalent (FTE) Basis The following tables present average balance and interest rate information. Tax-exempt income is converted to a FTE basis using the statutory federal income tax rate adjusted for applicable state income taxes net of the related federal tax benefit. For dividends on corporate stocks, the 70% federal dividends received deduction is also used in the calculation of tax equivalency. Average balances and yields for securities available for sale are based on amortized cost. Nonaccrual and renegotiated loans, as well as interest earned on these loans (to the extent recognized in the Consolidated Statements of Income) are included in amounts presented for loans.


Three months ended June 30,                            2013                                               2012
(Dollars in thousands)            Average Balance      Interest      Yield/ Rate     Average Balance      Interest      Yield/ Rate
Assets:
Commercial loans                       $1,291,244       $14,747          4.58 %           $1,166,545       $14,590          5.03 %
Residential real estate loans,
including mortgage loans held
for sale                                  762,363         7,877          4.14 %              714,154         7,809          4.40 %
Consumer loans                            325,539         3,090          3.81 %              320,442         3,067          3.85 %
Total loans                             2,379,146        25,714          4.34 %            2,201,141        25,466          4.65 %
Cash, federal funds sold and
short-term investments                     44,690            24          0.22 %               30,078            17          0.23 %
FHLBB stock                                37,730            39          0.42 %               40,418            54          0.54 %

Taxable debt securities                   293,586         2,576          3.52 %              451,207         4,069          3.63 %
Nontaxable debt securities                 66,468           985          5.94 %               70,462         1,039          5.93 %
Corporate stocks                                -             -             - %                1,804            34          7.58 %
Total securities                          360,054         3,561          3.97 %              523,473         5,142          3.95 %
Total interest-earning assets           2,821,620        29,338          4.17 %            2,795,110        30,679          4.41 %
Noninterest-earning assets                213,336                                            222,057
Total assets                           $3,034,956                                         $3,017,167
Liabilities and Shareholders'
Equity:
Interest-bearing demand deposits             $135            $-             - %                   $-            $-             - %
NOW accounts                              289,858            45          0.06 %              254,528            39          0.06 %
Money market accounts                     535,107           381          0.29 %              405,241           232          0.23 %
Savings accounts                          286,547            47          0.07 %              258,824            72          0.11 %
Time deposits                             843,462         2,623          1.25 %              905,466         3,042          1.35 %
FHLBB advances                            326,839         2,679          3.29 %              494,257         3,998          3.25 %
Junior subordinated debentures             31,405           612          7.82 %               32,991           391          4.77 %
Other                                         205             3          5.87 %                  973             5          2.07 %
Total interest-bearing
liabilities                             2,313,558         6,390          1.11 %            2,352,280         7,779          1.33 %
Demand deposits                           365,747                                            321,094
Other liabilities                          52,249                                             52,939
Shareholders' equity                      303,402                                            290,854
Total liabilities and
shareholders' equity                   $3,034,956                                         $3,017,167
Net interest income                                     $22,948                                            $22,900
Interest rate spread                                                     3.06 %                                             3.08 %
Net interest margin                                                      3.26 %                                             3.30 %

Interest income amounts presented in the preceding table include the following adjustments for taxable equivalency:
(Dollars in thousands) . . .

  Add WASH to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for WASH - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.