New markets help Washington Trust to banner year

Luring business away from larger banks, maintaining diversified earnings streams and expanding into mortgage markets outside Rhode Island led Washington Trust Bancorp Inc., parent of The Washington Trust Co., to post a record profit of $36.2 million for 2013, an increase of 3.1 percent compared with $35.1 million of net income for 2012.
Diluted earnings per share were $2.16, an increase of 1 percent over $2.13 earnings per diluted share in 2012.
“We continued to grow the company during challenging economic times and compete head-to-head with our larger competitors,” Washington Trust Chairman and CEO Joseph J. MarcAurele said last week.
The bank’s fourth-quarter profit of $9.8 million represented an 8.5 percent increase over $9 million in 2012 fourth-quarter earnings.
The company’s record yearly net income came despite the bank’s 4.2 percent decline in total interest and noninterest income for 2013 to $178.4 million. That tip toward the positive is the result of a combination of factors, said MarcAurele.
“We’ve been able to effectively reduce our expenses overall and also reduce our funding cost,” said MarcAurele. “We’ve been able to change our deposit mix by more significantly penetrating the deposit business in our commercial banking group, so we have more checking-account balances that we don’t pay interest on than we had in the past. They’re primarily commercial. They’re the operating accounts of the larger commercial borrowers we’ve been able to bring into the bank.”
Total deposits reached an all-time high of $2.5 billion at year end, said MarcAurele.
“Demand deposits were up an impressive 16 percent from the end of 2012, primarily due to new commercial and cash-management relationships,” he said.
Future deposit growth is expected with the opening of a new branch in Johnston in the second quarter of this year.
Another factor in reaching record revenue is trimming interest expenses, said MarcAurele.
“We have a certain number of Federal Home Loan Bank of Boston borrowings that we’ve had over time and because our deposit growth has been so good, we’ve been able to pay some of those borrowings down, which effectively eliminates the interest expense we pay on those borrowings,” said MarcAurele. Wealth management is a strong factor in Washington Trust’s record earnings, with revenue in that segment increasing 7.4 percent to $31.8 million with assets under management growing 4 percent to $4.78 billion.
“We are unusual, in a good way, for a community bank because we have such a large wealth-management business,” said MarcAurele. “The stock market in 2013 was quite strong, so the assets that we manage for our wealthy clients have grown.”
Loans made by the bank totaled to $2.5 billion as of Dec. 31, up 7.4 percent during the year. The bank’s commercial loan portfolio grew 8.9 percent to $1.4 billion and the residential real estate loans increased 7.7 percent to $772.7 million.
Net gains on loan sales and commissions received on loans originated for others declined by $1.4 million, or 47 percent, on a linked-quarter basis, Washington Trust Vice Chairman, Secretary and Chief Financial Officer David V. Devault said in a Jan. 29 review of the earnings report. “These results are primarily due to a decline in refinancing activity due to higher mortgage interest rates.”
While the Rhode Island residential real estate market remains sluggish, Washington Trust is expanding in neighboring states of Massachusetts and Connecticut where the economy is better. The bank opened a mortgage-production office in Stamford, Conn., during the fourth quarter 2013.
“That will enable us to service the Fairfield County, Conn., market, one that we felt will be good for us,” said MarcAurele. Three mortgage-production offices in Massachusetts are also part of the bank’s strategy of increasing that market outside the Ocean State.
Washington Trust named Edward O. “Ned” Handy III as president and chief operating officer last fall, luring him from his former position as Citizens Bank president for Rhode Island and Connecticut. Handy took his position at Washington Trust in November and is managing mortgage, retail and commercial business for the bank.
“My job is to try and take advantage of the incredible foundation that’s been built here, whether it’s asset quality or growth momentum,” said Handy. “It could be through new geographies, like our relatively new mortgage offices in Massachusetts and Connecticut that I’ll help to grow.” •

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