WashTrust profits up, as wealth assets pass $5B

The Washington Trust Co.’s multi-pronged growth strategy is paying off, as the state’s largest community bank registered a 9.1 percent year-over-year net income gain in the second quarter, despite a 6.2 percent decline in total interest and noninterest income.
Earnings totaled $9.8 million in the period ended June 30, compared with $9 million a year earlier, as diluted earnings per share increased to 58 cents from 54 cents in 2013.
“Our continued success is attributable to our commitment to a corporate strategy focused on market expansion, corporate business line growth and maximization of what we consider to be our unique business model, namely our wealth management division,” said Washington Trust Chairman and CEO Joseph J. MarcAurele in a July 22 phone conference to review second-quarter results.
While the wealth management division is not unusual in its operations, it is unique in relationship to the bank’s overall category, he said.
“What’s unique is that for a community bank of our size, we have a very large wealth management business,” MarcAurele told Providence Business News.
The “division achieved a major milestone during the quarter, reaching $5 billion in assets under management for the first time in our company’s history,” MarcAurele said. “This is a high priority business line for us, because it provides a consistent stream of non-interest income. In fact, wealth management revenues represented 23 percent of the company’s total second-quarter revenues.”
The bank’s wealth management assets under administration rose by $577 million, a 13 percent increase over the same 2013 period. As a result, wealth management revenue increased 7.8 percent to $8.5 million.
After a slow start earlier in the year, mortgage banking activity increased in the second quarter as well, and the bank posted solid loan sale gains, MarcAurele said. Expansion has been a critical part of Washington Trust’s mortgage banking growth in the past five years, he said.
Washington Trust opened its first mortgage office outside Rhode Island in Sharon, Mass., in August 2009. Since then the bank has opened four additional mortgage offices, located in Burlington and Braintree, Mass., and Glastonbury and Stamford, Conn.
“This proved to be a key strategic decision, as more than 50 percent of our current mortgage portfolio is now comprised of loans from Massachusetts and Connecticut,” said MarcAurele. “The economies in those markets have proven to be somewhat stronger, with higher home values and more robust sales activity than what we’ve seen in Rhode Island.”
When asked about the year-over-year decline of interest and non-interest income for the second quarter from $45.2 million to $42.4 million, MarcAurele pointed to the first-quarter sale of the bank’s merchant processing services to Vantiv.
“We had a $6.3 million gain in the first quarter from the sale of our merchant card business. That was a one-time event, so if you take that out, revenues did go up,” he said.
One sign of improving business was the $450,000 loan-loss provision charged in the second quarter, a significant decline from the $1.3 million taken a year earlier, even as the bank’s loan portfolio increased 9.7 percent to $2.58 billion during the three-month period. Total assets increased 5.9 percent to $3.32 billion.
?Performance metrics were relatively mixed, with a return on average equity for the second quarter of the year of 11.52 percent, compared with 11.84 percent for the period ended June 30, 2013. Return on average assets was 1.22 percent for the 2014 quarter, compared with 1.18 percent a year earlier. A couple of analysts’ reports – namely Guggenheim, which downgraded shares of Washington Trust Bancorp from a “buy” rating to “neutral” rating on July 10, and Zacks, which downgraded the bank’s shares from “outperform” to “neutral” on June 17 – don’t reflect the long-term view of bank management, said MarcAurele.
“We’re always concerned when people change their outlook on our stock, but I think it’s really a reflection of the current value of the stock,” MarcAurele said.
“Right now we’re trading at over 200 percent of tangible book value. When you get up to those kind of lofty valuations, it’s hard for an analyst to be able to say the stock is worth considerably more. Between that and the fact that we’re sitting today at a price-to-earnings ratio of almost 16 times earnings, those would be considered pretty significant valuations,” he said.
“As management of the company, we always have to be concerned about the value we’re delivering the stockholders, but we can’t overreact to individual, what we think are short-term, assessments of the company,” said MarcAurele. “We have to run our business in a way that makes sense to us, and we’ll deliver long-term benefits to our shareholders.”
On the retail banking front, Washington Trust opened a new branch, its 19th, in Johnston in May. There could be more, in line with the company’s “conservatively aggressive” stance, said MarcAurele.
“We have zeroed in on a few more locations,” he said. “If retail branches are done in a way that’s economically reasonable for the company, not huge or over-staffed, I think people still value the presence of the branch. We’re trying to create convenience for our customers.” •

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