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Washington Trust Reports Record Quarterly Earnings

WESTERLY, R.I., Oct. 24, 2016 (GLOBE NEWSWIRE) -- Washington Trust Bancorp, Inc. (Nasdaq:WASH), parent company of The Washington Trust Company, today announced net income of $12.3 million, or $0.72 per diluted share, for the third quarter of 2016, up from net income of $11.1 million, or $0.64 per diluted share, reported for the second quarter of 2016.

"Our third quarter results reflect the strength and diversity of our business model, as we generated key revenues from our core business lines,” stated Joseph J. MarcAurele, Washington Trust Chairman and Chief Executive Officer. “We also posted record earnings and surpassed $4 billion in total assets for the first time in our 216-year history."

Selected highlights for the third quarter of 2016 include:

  • Returns on average equity and average assets were strong at 12.57% and 1.21%, respectively. Comparable amounts for the second quarter of 2016 were 11.50% and 1.14%, respectively.

  • The latest quarter results included a $939 thousand, or 5 cent per diluted share, benefit resulting from the reduction of a contingent consideration liability. Additional information is presented below under the heading Noninterest Expenses.

  • Total loans stood at $3.2 billion at September 30, 2016, up by 3% in the quarter and up by 8% from a year ago.

  • Total deposits grew by 9% in the third quarter and amounted to $3.0 billion at September 30, 2016. Deposits were up by 7% from a year ago.

  • Wealth management assets at the end of quarter stood in excess of $6 billion and third quarter revenues totaled $9.6 million. These were record highs for Washington Trust.

  • Mortgage banking revenues amounted to $3.7 million, up by 38% on a linked quarter basis. Mortgage loans sold to the secondary market totaled $164 million, the highest quarterly volume in our history.

  • In September, Washington Trust declared a quarterly dividend of 37 cents per share, representing a 1 cent per share increase over the previous quarter and the second dividend increase in 2016.

Net Interest Income
Net interest income totaled $27.4 million for the third quarter of 2016, up by $603 thousand on a linked quarter basis. The net interest margin was 2.94% for the third quarter of 2016, down by 11 basis points from the previous quarter. The reduction in the net interest margin was primarily due to lower yields on interest-earning assets, resulting from additions to the investment securities portfolio and to a lesser extent, a reduction in the yield on the loan portfolio. Significant linked quarter changes included:

  • Average interest-earning assets increased by $178 million from the prior quarter, reflecting a $95 million increase in the average balance of investment securities and a $58 million increase in the average balance of loans. The yield on interest-earning assets was 3.55%, down by 10 basis points.

  • Average interest-bearing liabilities increased by $131 million from the prior quarter, reflecting an increase of $111 million in the average balance of wholesale funding balances and an increase of $19 million in average interest-bearing deposits. The cost of interest-bearing funds was 0.76%, up by 2 basis points from the prior quarter.

Noninterest Income
Noninterest income totaled $17.3 million for the third quarter of 2016, up by $1.3 million, or 8%, from the second quarter of 2016. Significant linked quarter changes included:

  • Wealth management revenues, our largest source of noninterest income, totaled $9.6 million for the third quarter, up by $142 thousand, or 1%, from the prior quarter. The linked quarter change was affected by the second quarter recognition of $344 thousand in tax preparation fee income, which is typically concentrated in that quarter. Wealth management assets under administration amounted to $6.1 billion at September 30, 2016, up by $152 million on a linked quarter basis. Managed assets continue to represent over 90% of total wealth management assets at September 30, 2016.

  • Mortgage banking revenues totaled $3.7 million in the third quarter, up by $1.0 million, or 38%, from the previous quarter, reflecting both a higher volume of and yield on loans sold to the secondary market. Residential mortgage loans sold to the secondary market amounted to $164 million in the third quarter, compared to $139 million in the previous quarter.

  • Income from bank-owned life insurance ("BOLI") amounted to $521 thousand in the third quarter, down by $569 thousand on a linked quarter basis. This decrease was due to a $589 thousand non-taxable gain recognized in the second quarter due to the receipt of life insurance proceeds.

  • Loan related derivative income amounted to $1.2 million in the third quarter, up by $670 thousand from the prior quarter.

Noninterest Expenses
Noninterest expenses totaled $24.7 million for the third quarter of 2016, down by $1.4 million, or 5%, from the prior quarter. The largest reason for the decline was a $939 thousand reduction in noninterest expenses resulting from a downward adjustment in the fair value of the contingent consideration liability previously recognized upon the completion of the acquisition of Halsey Associates, Inc. in 2015. The remaining linked quarter decrease in noninterest expenses was due to a $497 thousand decline in salaries and employee benefit costs. In the previous quarter, costs of $425 thousand were recognized for various employee severance matters.

Income tax expense amounted to $5.9 million for the third quarter of 2016, up by $710 thousand from the prior quarter. The effective tax rate for the third quarter of 2016 was 32.2%, compared to 31.8% for the second quarter of 2016. The effective tax rate in the prior quarter was lower due to the impact of the non-taxable gain related to the receipt of BOLI proceeds. Based on the current federal and applicable state income tax statutes, the Corporation currently expects the effective tax rate for the fourth quarter of 2016 will be approximately 32.5%.

Loans
Total loans amounted to $3.2 billion at September 30, 2016, up by $100 million, or 3%, from the balance at the end of the second quarter. Residential loan portfolio balances increased by $75 million, or 7%. During the quarter, $59 million of residential mortgages were purchased. These purchased loans were individually evaluated to our underwriting standards and are predominantly secured by properties in Massachusetts. The commercial loan portfolio increased by $25 million, or 1.4%, during the quarter, reflecting growth in the commercial mortgage and commercial construction portfolios.

Investment Securities
The investment securities portfolio amounted to $581 million at September 30, 2016, up by $161 million, or 38.5%, from the balance at June 30, 2016. During the quarter, government agency mortgage-backed debt securities and agency debt securities totaling $216 million and with a weighted average yield of 2.48% were purchased. The purchases were partially offset by calls of agency debt securities and obligations of state and political subdivisions, as well as routine principal pay-downs on mortgage-backed securities. Investment securities represented 14% of total assets as of September 30, 2016.

Deposits and Borrowings
Total deposits amounted to $3.0 billion at September 30, 2016, up by $248 million, or 8.9%, in the third quarter. Included in total deposits were wholesale brokered time deposit balances of $359 million, which increased by $65 million from the balance at the end of the second quarter. Excluding wholesale brokered time deposits, in-market deposits increased by $183 million, or 7.3%, in the quarter. This reflects increases in money market deposits and noninterest-bearing demand deposits, including inflows associated with the business cycles of various institutional and governmental depositors.

FHLBB advances amounted to $672 million at September 30, 2016, up by $32 million, or 4.9%, from June 30, 2016.

Asset Quality
Total past due loans amounted to $21.3 million, or 0.67% of total loans, at September 30, 2016, compared to $17.1 million, or 0.56% of total loans, at June 30, 2016. Total nonaccrual loans amounted to $24.0 million, or 0.75% of total loans, at September 30, 2016, compared to $17.2 million, or 0.56% of total loans, at June 30, 2016. The increase in both past due loans and nonaccrual loans was due to one commercial real estate relationship, previously modified in a troubled debt restructuring, with a carrying value of $6.3 million as of September 30, 2016. During the third quarter, a $1.9 million charge-off was recognized on this relationship.

A loan loss provision totaling $1.8 million was charged to earnings in the third quarter of 2016, compared to a loan loss provision of $450 thousand recognized in the second quarter of 2016. The increase in loan loss provision was primarily due to the additional loss exposure allocated to the commercial real estate relationship noted above. The allowance for loan losses was $25.6 million, or 0.81% of total loans, at September 30, 2016, compared to $25.8 million, or 0.84% of total loans, at June 30, 2016.

Capital and Dividends
Total shareholders' equity was $395 million at September 30, 2016, up by $7 million from June 30, 2016. Capital levels at September 30, 2016 exceeded the regulatory minimum levels to be considered well capitalized, with a total risk-based capital ratio of 12.31% at September 30, 2016, compared to 12.43% at June 30, 2016. At September 30, 2016, book value per share amounted to $23.11, up from $22.73 in the prior quarter.

The Board of Directors declared a quarterly dividend of 37 cents per share for the quarter ended September 30, 2016. The dividend was paid on October 14, 2016 to shareholders of record on October 3, 2016.

Conference Call
Washington Trust will host a conference call to discuss its third quarter results, business highlights and outlook on Tuesday, October 25, 2016 at 8:30 a.m. (Eastern Time). Individuals may dial in to the call at 1-877-407-0784. An audio replay of the call will be available, shortly after the conclusion of the call, by dialing 1-877-870-5176 and entering the Replay PIN Number 13646314; the audio replay will be available through November 4, 2016. Also, a webcast of the call will be posted in the Investor Relations section of Washington Trust's web site, www.washtrustbancorp.com, and will be available through December 31, 2016.

Background
Washington Trust Bancorp, Inc. is the parent of The Washington Trust Company. Founded in 1800, Washington Trust is the oldest community bank in the nation, the largest state-chartered bank headquartered in Rhode Island and one of the Northeast's premier financial services companies. Washington Trust offers a full range of financial services, including commercial banking, mortgage banking, personal banking and wealth management and trust services through its offices located in Rhode Island, Connecticut and Massachusetts. The Corporation’s common stock trades on NASDAQ under the symbol WASH. Investor information is available on the Corporation’s web site at www.washtrustbancorp.com.

Forward-Looking Statements
This press release contains statements that are “forward-looking statements”. We may also make forward-looking statements in other documents we file with the SEC, 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 Washington Trust. These risks, uncertainties and other factors may cause the actual results, performance or achievements of Washington Trust 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: weakness in national, regional or international economic conditions or conditions affecting the banking or financial services industries or financial capital markets; volatility 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 our 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, 2015, 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.

Supplemental Information - Explanation of Non-GAAP Financial Measures
In addition to results presented in accordance with generally accepted accounting principles (“GAAP”), this press release contains certain non-GAAP financial measures. Washington Trust's management believes that the supplemental non-GAAP information, which consists of measurements and ratios based on tangible equity and tangible assets, is utilized by regulators and market analysts to evaluate a company's financial condition and therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.

Washington Trust Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
Sep 30,
2016
Jun 30,
2016
Mar 31,
2016
Dec 31,
2015
Sep 30,
2015
Assets:
Cash and due from banks$126,752 $116,658 $89,966 $93,222 $106,445
Short-term investments 2,420 3,255 4,931 4,409 3,629
Mortgage loans held for sale 45,162 38,554 22,895 38,554 31,805
Securities:
Available for sale, at fair value 564,256 401,749 411,352 375,044 323,795
Held to maturity, at amortized cost 16,848 17,917 19,040 20,023 21,140
Total securities 581,104 419,666 430,392 395,067 344,935
Federal Home Loan Bank stock, at cost 37,249 34,303 26,515 24,316 37,730
Loans:
Commercial 1,757,215 1,732,220 1,698,811 1,654,547 1,579,854
Residential real estate 1,079,887 1,005,036 1,004,349 1,013,555 1,024,214
Consumer 344,253 343,628 343,833 345,025 345,850
Total loans 3,181,355 3,080,884 3,046,993 3,013,127 2,949,918
Less allowance for loan losses 25,649 25,826 26,137 27,069 27,161
Net loans 3,155,706 3,055,058 3,020,856 2,986,058 2,922,757
Premises and equipment, net 29,433 29,590 29,882 29,593 28,180
Investment in bank-owned life insurance 70,557 65,036 66,000 65,501 65,000
Goodwill 64,059 64,059 64,059 64,059 64,196
Identifiable intangible assets, net 10,493 10,814 11,137 11,460 11,793
Other assets 81,099 80,088 71,577 59,365 58,366
Total assets$4,204,034 $3,917,081 $3,838,210 $3,771,604 $3,674,836
Liabilities:
Deposits:
Demand deposits$566,027 $512,307 $539,119 $537,298 $513,856
NOW accounts 404,827 414,532 394,873 412,602 358,973
Money market accounts 794,905 675,896 763,565 823,490 855,858
Savings accounts 357,966 342,579 331,800 326,967 305,775
Time deposits 913,649 844,036 850,294 833,898 801,818
Total deposits 3,037,374 2,789,350 2,879,651 2,934,255 2,836,280
Federal Home Loan Bank advances 671,615 640,010 487,189 378,973 381,649
Junior subordinated debentures 22,681 22,681 22,681 22,681 22,681
Other liabilities 77,037 76,708 67,409 60,307 63,699
Total liabilities 3,808,707 3,528,749 3,456,930 3,396,216 3,304,309
Shareholders’ Equity:
Common stock 1,069 1,068 1,064 1,064 1,062
Paid-in capital 113,290 112,314 111,641 110,949 109,724
Retained earnings 288,613 282,666 277,810 273,074 268,166
Accumulated other comprehensive loss (7,645) (7,716) (9,235) (9,699) (8,425)
Total shareholders’ equity 395,327 388,332 381,280 375,388 370,527
Total liabilities and shareholders’ equity$4,204,034 $3,917,081 $3,838,210 $3,771,604 $3,674,836


CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; Dollars in thousands, except per share amounts)
For the Nine Months Ended
For the Three Months Ended
Sep 30,
2016
Jun 30,
2016
Mar 31,
2016
Dec 31,
2015
Sep 30,
2015
Sep 30,
2016
Sep 30,
2015
Interest income:
Interest and fees on loans$29,633 $29,122 $29,998 $28,511 $28,626 $88,753 $85,718
Taxable interest on securities 3,024 2,487 2,370 2,262 2,178 7,881 6,613
Nontaxable interest on securities 218 280 327 352 366 825 1,203
Dividends on Federal Home Loan Bank stock 288 231 210 315 309 729 638
Other interest income 93 70 64 37 47 227 101
Total interest and dividend income 33,256 32,190 32,969 31,477 31,526 98,415 94,273
Interest expense:
Deposits 3,110 2,981 2,968 3,097 3,308 9,059 10,045
Federal Home Loan Bank advances 2,641 2,313 2,152 1,966 1,987 7,106 5,780
Junior subordinated debentures 125 119 112 157 232 356 714
Other interest expense 1 1 2 2 2 4 7
Total interest expense 5,877 5,414 5,234 5,222 5,529 16,525 16,546
Net interest income 27,379 26,776 27,735 26,255 25,997 81,890 77,727
Provision for loan losses 1,800 450 500 750 200 2,750 300
Net interest income after provision for loan losses 25,579 26,326 27,235 25,505 25,797 79,140 77,427
Noninterest income:
Wealth management revenues 9,623 9,481 9,174 9,167 8,902 28,278 26,249
Mortgage banking revenues 3,734 2,710 2,198 2,582 1,990 8,642 7,319
Service charges on deposit accounts 915 935 907 971 986 2,757 2,894
Card interchange fees 870 860 797 810 849 2,527 2,389
Income from bank-owned life insurance 521 1,090 499 502 498 2,110 1,480
Loan related derivative income 1,178 508 645 752 327 2,331 1,689
Equity in losses of unconsolidated subsidiaries (88) (89) (88) (69) (69) (265) (224)
Other income 508 419 502 431 430 1,429 1,398
Total noninterest income 17,261 15,914 14,634 15,146 13,913 47,809 43,194
Noninterest expense:
Salaries and employee benefits 16,908 17,405 16,380 16,053 15,971 50,693 46,971
Net occupancy 1,766 1,803 1,807 1,724 1,721 5,376 5,276
Equipment 1,648 1,503 1,501 1,393 1,424 4,652 4,140
Outsourced services 1,254 1,294 1,363 1,337 1,250 3,911 3,774
Legal, audit and professional fees 691 662 629 825 630 1,982 1,916
FDIC deposit insurance costs 504 491 493 470 467 1,488 1,376
Advertising and promotion 370 420 265 325 356 1,055 1,201
Amortization of intangibles 321 322 323 333 260 966 571
Debt prepayment penalties 431 431
Acquisition related expenses 52 504 937
Change in fair value of contingent consideration (939) (939)
Other expenses 2,127 2,130 2,258 2,049 1,955 6,515 6,206
Total noninterest expense 24,650 26,030 25,450 24,561 24,538 76,130 72,368
Income before income taxes 18,190 16,210 16,419 16,090 15,172 50,819 48,253
Income tax expense 5,863 5,153 5,484 5,346 4,964 16,500 15,532
Net income$12,327 $11,057 $10,935 $10,744 $10,208 $34,319 $32,721
Net income available to common shareholders:
Basic$12,302 $11,035 $10,910 $10,718 $10,181 $34,247 $32,621
Diluted$12,302 $11,035 $10,910 $10,718 $10,180 $34,247 $32,621
Weighted average common shares outstanding:
Basic 17,090 17,067 17,023 17,004 16,939 17,060 16,837
Diluted 17,203 17,194 17,157 17,167 17,102 17,198 17,027
Earnings per common share:
Basic$0.72 $0.65 $0.64 $0.63 $0.60 $2.01 $1.94
Diluted$0.72 $0.64 $0.64 $0.62 $0.60 $1.99 $1.92
Cash dividends declared per share$0.37 $0.36 $0.36 $0.34 $0.34 $1.09 $1.02


SELECTED FINANCIAL HIGHLIGHTS
(Unaudited; Dollars in thousands, except per share amounts)
Sep 30,
2016
Jun 30,
2016
Mar 31,
2016
Dec 31,
2015
Sep 30,
2015
Share and Equity Related Data:
Book value per share$23.11 $22.73 $22.40 $22.06 $21.82
Tangible book value per share - Non-GAAP (1)$18.75 $18.35 $17.98 $17.62 $17.36
Market value per share$40.22 $37.92 $37.32 $39.52 $38.45
Shares issued and outstanding at end of period 17,107 17,081 17,024 17,020 16,985
Capital Ratios:
Tier 1 risk-based capital11.48% (i) 11.57 % 11.56 % 11.64 % 11.83 %
Total risk-based capital12.31% (i) 12.43 % 12.45 % 12.58 % 12.80 %
Tier 1 leverage ratio8.95% (i) 9.21 % 9.31 % 9.37 % 9.26 %
Common equity tier 110.77% (i) 10.84 % 10.82 % 10.89 % 11.05 %
Equity to assets 9.40 % 9.91 % 9.93 % 9.95 % 10.08 %
Tangible equity to tangible assets - Non-GAAP (1) 7.77 % 8.16 % 8.13 % 8.11 % 8.18 %
(i) - estimated


For the Nine Months Ended
For the Three Months Ended
Sep 30,
2016
Jun 30,
2016
Mar 31,
2016
Dec 31,
2015
Sep 30,
2015
Sep 30,
2016
Sep 30,
2015
Performance Ratios:
Net interest margin (FTE)2.94%3.05%3.24%3.08%3.07% 3.07%3.13%
Return on average assets1.21%1.14%1.16%1.16%1.11% 1.17%1.20%
Return on average tangible assets - Non-GAAP (1)1.24%1.17%1.18%1.19%1.13% 1.20%1.22%
Return on average equity12.57%11.50%11.50%11.52%11.13% 11.86%12.17%
Return on average tangible equity - Non-GAAP (1)15.53%14.28%14.34%14.45%13.82% 14.72%14.90%

(1) See the section labeled “SUPPLEMENTAL INFORMATION - Calculation of Non-GAAP Financial Measures” at the end of this document.

SELECTED FINANCIAL HIGHLIGHTS
(Unaudited; Dollars in thousands)
For the Nine Months Ended
For the Three Months Ended
Sep 30,
2016
Jun 30,
2016
Mar 31,
2016
Dec 31,
2015
Sep 30,
2015
Sep 30,
2016
Sep 30,
2015
Wealth Management Results
Wealth Management Revenues:
Trust and investment management fees$8,358 $8,195 $8,065 $8,001 $7,768 $24,618 $22,148
Mutual fund fees 812 812 843 952 989 2,467 3,057
Asset-based revenues 9,170 9,007 8,908 8,953 8,757 27,085 25,205
Transaction-based revenues 453 474 266 214 145 1,193 1,044
Total wealth management revenues$9,623 $9,481 $9,174 $9,167 $8,902 $28,278 $26,249
Assets Under Administration:
Balance at beginning of period$5,905,019 $5,878,967 $5,844,636 $5,714,201 $5,211,548 $5,844,636 $5,069,966
Acquisition of Halsey Associates, Inc. 839,994 839,994
Net investment appreciation (depreciation)
& income
192,518 71,447 22,389 153,953 (316,121) 286,354 (249,181)
Net client asset flows (40,678) (45,395 ) 11,942 (23,518) (21,220) (74,131) 53,422
Balance at end of period$6,056,859 $5,905,019 $5,878,967 $5,844,636 $5,714,201 $6,056,859 $5,714,201
Mortgage Banking Results
Mortgage Banking Revenues:
Gains & commissions on loan sales, net$3,744 $2,804 $2,134 $2,528 $1,964 $8,682 $7,297
Residential mortgage servicing fee income, net (10) (94) 64 54 26 (40) 22
Total mortgage banking revenues$3,734 $2,710 $2,198 $2,582 $1,990 $8,642 $7,319
Residential Mortgage Loan Originations:
Originations for retention in portfolio$90,308 $54,080 $47,545 $38,080 $76,963 $191,934 $196,772
Originations for sale to secondary market (1) 170,673 154,043 90,458 134,125 126,353 $415,174 389,709
Total mortgage loan originations$260,981 $208,123 $138,003 $172,205 $203,316 $607,108 $586,481
Residential Mortgage Loans Sold:
Sold with servicing rights retained$44,611 $45,804 $26,454 $44,493 $37,782 $116,869 $117,731
Sold with servicing rights released (1) 119,572 93,239 79,507 82,906 94,645 $292,318 285,770
Total mortgage loans sold$164,183 $139,043 $105,961 $127,399 $132,427 $409,187 $403,501

(1) Also includes loans originated in a broker capacity.

END OF PERIOD LOAN AND DEPOSIT COMPOSITION
(Unaudited; Dollars in thousands)
Sep 30,
2016
Jun 30,
2016
Mar 31,
2016
Dec 31,
2015
Sep 30,
2015
Commercial:
Mortgages$1,086,175 $1,074,747 $976,931 $931,953 $873,767
Construction & development 98,735 81,812 123,032 122,297 121,857
Commercial & industrial 572,305 575,661 598,848 600,297 584,230
Total commercial 1,757,215 1,732,220 1,698,811 1,654,547 1,579,854
Residential real estate:
Mortgages 1,052,829 978,399 980,274 984,437 994,808
Homeowner construction 27,058 26,637 24,075 29,118 29,406
Total residential real estate 1,079,887 1,005,036 1,004,349 1,013,555 1,024,214
Consumer:
Home equity lines 265,238 260,541 258,513 255,565 252,862
Home equity loans 38,264 39,572 45,499 46,649 47,610
Other 40,751 43,515 39,821 42,811 45,378
Total consumer 344,253 343,628 343,833 345,025 345,850
Total loans$3,181,355 $3,080,884 $3,046,993 $3,013,127 $2,949,918


September 30, 2016 December 31, 2015
Balance% of Total Balance% of Total
Commercial Real Estate Loans by Property Location:
Rhode Island, Connecticut, Massachusetts$1,097,935 92.7% $959,883 91.0%
New York, New Jersey, Pennsylvania 73,893 6.2% 80,989 7.7%
New Hampshire 13,082 1.1% 13,377 1.3%
Total commercial real estate loans (1)$1,184,910 100.0% $1,054,249 100.0%
Residential Mortgages by Property Location:
Rhode Island, Connecticut, Massachusetts$1,062,256 98.3% $995,743 98.2%
New Hampshire, Vermont, Maine 11,827 1.1% 10,186 1.0%
New York, Virginia, New Jersey, Maryland, Pennsylvania 2,851 0.3% 4,163 0.4%
Ohio 1,077 0.1% 1,557 0.2%
Other 1,876 0.2% 1,906 0.2%
Total residential mortgages$1,079,887 100.0% $1,013,555 100.0%

(1) Commercial real estate loans consist of commercial mortgages and construction and development loans. Commercial mortgages are loans secured by income producing property.

Sep 30,
2016
Jun 30,
2016
Mar 31,
2016
Dec 31,
2015
Sep 30,
2015
Deposits:
Non-interest bearing demand deposits$520,860 $476,848 $474,477 $475,398 $472,349
Interest-bearing demand deposits 45,167 35,459 64,642 61,900 41,507
NOW accounts 404,827 414,532 394,873 412,602 358,973
Money market accounts 794,905 675,896 763,565 823,490 855,858
Savings accounts 357,966 342,579 331,800 326,967 305,775
Time deposits (in-market) 554,669 549,935 540,815 531,419 534,266
Wholesale brokered time deposits 358,980 294,101 309,479 302,479 267,552
Total deposits$3,037,374 $2,789,350 $2,879,651 $2,934,255 $2,836,280


CREDIT & ASSET QUALITY DATA
(Unaudited; Dollars in thousands)
Sep 30,
2016
Jun 30,
2016
Mar 31,
2016
Dec 31,
2015
Sep 30,
2015
Asset Quality Ratios:
Nonperforming assets to total assets 0.59 % 0.48 % 0.49 % 0.58 % 0.48 %
Nonaccrual loans to total loans 0.75 % 0.56 % 0.57 % 0.70 % 0.57 %
Allowance for loan losses to nonaccrual loans 107.09 % 149.73 % 150.00 % 128.61 % 161.25 %
Allowance for loan losses to total loans 0.81 % 0.84 % 0.86 % 0.90 % 0.92 %
Nonperforming Assets:
Commercial mortgages$10,357 $4,054 $4,054 $5,711 $4,915
Commercial construction & development
Commercial & industrial 1,744 1,204 2,659 3,018 1,137
Residential real estate mortgages 10,140 10,409 9,367 10,666 9,472
Consumer 1,709 1,581 1,345 1,652 1,320
Total nonaccrual loans 23,950 17,248 17,425 21,047 16,844
Other real estate owned 1,045 1,515 1,326 716 955
Total nonperforming assets$24,995 $18,763 $18,751 $21,763 $17,799
Past Due Loans:
Commercial mortgages$10,352 $4,062 $4,564 $4,555 $5,062
Commercial & industrial 1,047 1,978 2,906 462 4,337
Residential real estate mortgages 8,291 8,893 8,703 9,286 10,567
Consumer loans 1,565 2,201 2,122 3,256 1,845
Total past due loans$21,255 $17,134 $18,295 $17,559 $21,811
Total past due loans to total loans 0.67 % 0.56 % 0.60 % 0.58 % 0.74 %
Accruing loans 90 days or more past due$— $— $— $— $—
Nonaccrual loans included in past due loans$18,796 $13,211 $14,030 $13,635 $13,964


For the Nine Months Ended
For the Three Months Ended
Sep 30,
2016
Jun 30,
2016
Mar 31,
2016
Dec 31,
2015
Sep 30,
2015
Sep 30,
2016
Sep 30,
2015
Nonaccrual Loan Activity:
Balance at beginning of period$17,248 $17,425 $21,047 $16,844 $15,131 $21,047 $15,945
Additions to nonaccrual status 9,750 2,072 1,352 7,029 3,319 13,174 7,494
Loans returned to accruing status (592) (206) (303) (156) (798) (2,278)
Loans charged-off (2,055) (860) (1,475) (904) (725) (4,390) (1,401)
Loans transferred to other real estate owned (435) (610) (716) (1,045) (491)
Payments, payoffs and other changes (401) (954) (2,683) (903) (725) (4,038) (2,425)
Balance at end of period$23,950 $17,248 $17,425 $21,047 $16,844 $23,950 $16,844
Allowance for Loan Losses:
Balance at beginning of period$25,826 $26,137 $27,069 $27,161 $27,587 $27,069 $28,023
Provision charged to earnings 1,800 450 500 750 200 2,750 300
Charge-offs (2,055) (860) (1,475) (904) (725) (4,390) (1,401)
Recoveries 78 99 43 62 99 220 239
Balance at end of period$25,649 $25,826 $26,137 $27,069 $27,161 $25,649 $27,161
Net Loan Charge-Offs (Recoveries):
Commercial mortgages$1,936 $65 $1,249 $405 $(4) $3,250 $312
Commercial & industrial (43) 684 (18) 217 348 623 367
Residential real estate mortgages 47 2 134 117 12 183 62
Consumer 37 10 67 103 270 114 421
Total$1,977 $761 $1,432 $842 $626 $4,170 $1,162
Net charge-offs to average loans (annualized) 0.25 % 0.10 % 0.19 % 0.11 % 0.08 % 0.18 % 0.05 %

The following table presents average balance and interest rate information. Tax-exempt income is converted to a fully taxable equivalent basis using the statutory federal income tax rate adjusted for applicable state income taxes net of the related federal tax benefit. Unrealized gains (losses) on available for sale securities and fair value adjustments on mortgage loans held for sale are excluded from the average balance and yield calculations. Nonaccrual and renegotiated loans, as well as interest recognized on these loans are included in amounts presented for loans.

CONSOLIDATED AVERAGE BALANCE SHEETS
(Unaudited; Dollars in thousands)
For the Three Months EndedSeptember 30, 2016 June 30, 2016 September 30, 2015
Average BalanceInterestYield/
Rate
Average BalanceInterestYield/
Rate
Average BalanceInterestYield/
Rate
Assets:
Commercial mortgages$1,079,917 $9,362 3.45 $1,019,290 $8,992 3.55 $869,471 $7,898 3.60
Construction & development 86,623 712 3.27 117,204 985 3.38 118,243 897 3.01
Commercial & industrial 565,170 6,382 4.49 591,893 6,408 4.35 583,931 6,680 4.54
Total commercial loans$1,731,710 $16,456 3.78 $1,728,387 $16,385 3.81 $1,571,645 $15,475 3.91
Residential real estate loans, including loans held for sale 1,080,302 10,386 3.82 1,024,653 9,980 3.92 1,050,949 10,329 3.90
Consumer loans 341,829 3,340 3.89 342,866 3,311 3.88 343,603 3,283 3.79
Total loans 3,153,841 30,182 3.81 3,095,906 29,676 3.86 2,966,197 29,087 3.89
Cash, federal funds sold and short-term investments 88,414 93 0.42 69,839 70 0.40 89,280 47 0.21
FHLBB stock 37,933 288 3.02 31,723 231 2.93 37,730 309 3.25
Taxable debt securities 497,738 3,024 2.42 396,428 2,487 2.52 316,214 2,178 2.73
Nontaxable debt securities 22,038 336 6.07 28,531 433 6.10 37,780 567 5.95
Total securities 519,776 3,360 2.57 424,959 2,920 2.76 353,994 2,745 3.08
Total interest-earning assets 3,799,964 33,923 3.55 3,622,427 32,897 3.65 3,447,201 32,188 3.70
Noninterest-earning assets 262,724 247,081 231,286
Total assets$4,062,688 $3,869,508 $3,678,487
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits$39,865 $13 0.13 $42,952 $7 0.07 $30,392 $5 0.07
NOW accounts 402,307 51 0.05 403,136 53 0.05 357,128 53 0.06
Money market accounts 709,549 487 0.27 710,075 459 0.26 820,597 951 0.46
Savings accounts 352,032 52 0.06 338,504 49 0.06 303,587 52 0.07
Time deposits (in-market) 552,576 1,408 1.01 542,621 1,345 1.00 541,486 1,338 0.98
Wholesale brokered time deposits 310,740 1,099 1.41 302,707 1,068 1.42 279,839 909 1.29
FHLBB advances 690,843 2,641 1.52 587,395 2,313 1.58 425,931 1,987 1.85
Junior subordinated debentures 22,681 125 2.19 22,681 119 2.11 22,681 232 4.06
Other 53 1 7.51 66 1 6.09 104 2 7.63
Total interest-bearing liabilities 3,080,646 5,877 0.76 2,950,137 5,414 0.74 2,781,745 5,529 0.79
Demand deposits 520,439 473,731 477,393
Other liabilities 69,370 60,923 52,625
Shareholders' equity 392,233 384,717 366,724
Total liabilities and shareholders' equity$4,062,688 $3,869,508 $3,678,487
Net interest income (FTE) $28,046 $27,483 $26,659
Interest rate spread 2.79 2.91 2.91
Net interest margin 2.94 3.05 3.07

Interest income amounts presented in the preceding table include the following adjustments for taxable equivalency:

For the Three Months Ended Sep 30,
2016
Jun 30,
2016
Sep 30,
2015
Commercial loans$549 $554 $461
Nontaxable debt securities 118 153 201
Total$667 $707 $662


CONSOLIDATED AVERAGE BALANCE SHEETS
(Unaudited; Dollars in thousands)
For the Nine Months EndedSeptember 30, 2016 September 30, 2015
Average BalanceInterestYield/
Rate
Average BalanceInterestYield/
Rate
Assets:
Commercial mortgages$1,011,327 $26,569 3.51 $864,941 $23,394 3.62
Construction & development 110,914 2,806 3.38 100,787 2,336 3.10
Commercial & industrial 587,098 20,470 4.66 597,887 20,987 4.69
Total commercial loans 1,709,339 49,845 3.90 1,563,615 46,717 3.99
Residential real estate loans, including loans held for sale 1,045,532 30,521 3.90 1,035,408 30,745 3.97
Consumer loans 342,735 10,044 3.91 339,608 9,634 3.79
Total loans 3,097,606 90,410 3.90 2,938,631 87,096 3.96
Cash, federal funds sold and short-term investments 75,627 227 0.40 68,205 101 0.20
FHLBB stock 31,774 729 3.06 37,730 638 2.26
Taxable debt securities 418,034 7,881 2.52 319,786 6,613 2.76
Nontaxable debt securities 27,939 1,276 6.10 41,083 1,858 6.05
Total securities 445,973 9,157 2.74 360,869 8,471 3.14
Total interest-earning assets 3,650,980 100,523 3.68 3,405,435 96,306 3.78
Noninterest-earning assets 250,019 224,921
Total assets$3,900,999 $3,630,356
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits$44,490 $34 0.10 $35,430 $17 0.06
NOW accounts 397,329 161 0.05 350,151 153 0.06
Money market accounts 735,324 1,461 0.27 813,915 2,775 0.46
Savings accounts 339,616 148 0.06 298,635 148 0.07
Time deposits (in-market) 544,441 4,067 1.00 554,369 4,198 1.01
Wholesale brokered time deposits 303,442 3,188 1.40 286,728 2,754 1.28
FHLBB advances 577,501 7,106 1.64 407,363 5,780 1.90
Junior subordinated debentures 22,681 356 2.10 22,681 714 4.21
Other 66 4 8.10 116 7 8.07
Total interest-bearing liabilities 2,964,890 16,525 0.74 2,769,388 16,546 0.80
Demand deposits 488,767 452,691
Other liabilities 61,555 49,786
Shareholders' equity 385,787 358,491
Total liabilities and shareholders' equity$3,900,999 $3,630,356
Net interest income (FTE) $83,998 $79,760
Interest rate spread 2.94 2.98
Net interest margin 3.07 3.13

Interest income amounts presented in the preceding table include the following adjustments for taxable equivalency:

For the Nine Months Ended Sep 30,
2016
Sep 30,
2015
Commercial loans$1,657 $1,378
Nontaxable debt securities 451 655
Total$2,108 $2,033


SUPPLEMENTAL INFORMATION - Calculation of Non-GAAP Financial Measures
(Unaudited; Dollars in thousands, except per share amounts)
Sep 30,
2016
Jun 30,
2016
Mar 31,
2016
Dec 31,
2015
Sep 30,
2015
Tangible Book Value per Share:
Total shareholders' equity, as reported$395,327 $388,332 $381,280 $375,388 $370,527
Less:
Goodwill 64,059 64,059 64,059 64,059 64,196
Identifiable intangible assets, net 10,493 10,814 11,137 11,460 11,793
Total tangible shareholders' equity$320,775 $313,459 $306,084 $299,869 $294,538
Shares outstanding, as reported 17,107 17,081 17,024 17,020 16,985
Book value per share - GAAP$23.11 $22.73 $22.40 $22.06 $21.82
Tangible book value per share - Non-GAAP$18.75 $18.35 $17.98 $17.62 $17.34
Tangible Equity to Tangible Assets:
Total tangible shareholders' equity$320,775 $313,459 $306,084 $299,869 $294,538
Total assets, as reported$4,204,034 $3,917,081 $3,838,210 $3,771,604 $3,674,836
Less:
Goodwill 64,059 64,059 64,059 64,059 64,196
Identifiable intangible assets, net 10,493 10,814 11,137 11,460 11,793
Total tangible assets$4,129,482 $3,842,208 $3,763,014 $3,696,085 $3,598,847
Equity to assets - GAAP 9.40 % 9.91 % 9.93 % 9.95 % 10.08 %
Tangible equity to tangible assets - Non-GAAP 7.77 % 8.16 % 8.13 % 8.11 % 8.18 %


For the Three Months Ended For the Nine Months Ended
Sep 30,
2016
Jun 30,
2016
Mar 31,
2016
Dec 31,
2015
Sep 30,
2015
Sep 30,
2016
Sep 30,
2015
Return on Average Tangible Assets:
Net income, as reported$12,327 $11,057 $10,935 $10,744 $10,208 $34,319 $32,721
Total average assets, as reported$4,062,688 $3,869,508 $3,769,025 $3,700,441 $3,678,487 $3,900,999 $3,630,356
Less average balances of:
Goodwill 64,059 64,059 64,059 64,194 62,524 64,059 59,465
Identifiable intangible assets, net 10,650 10,972 11,294 11,616 8,768 10,971 6,280
Total average tangible assets$3,987,979 $3,794,477 $3,693,672 $3,624,631 $3,607,195 $3,825,969 $3,564,611
Return on average assets - GAAP 1.21 % 1.14 % 1.16 % 1.16 % 1.11 % 1.17 % 1.20 %
Return on average tangible assets -
Non-GAAP
1.24 % 1.17 % 1.18 % 1.19 % 1.13 % 1.20 % 1.22 %
Return on Average Tangible Equity:
Net income, as reported$12,327 $11,057 $10,935 $10,744 $10,208 $34,319 $32,721
Total average equity, as reported$392,233 $384,717 $380,342 $373,197 $366,724 $385,787 $358,491
Less average balances of:
Goodwill 64,059 64,059 64,059 64,194 62,524 64,059 59,465
Identifiable intangible assets, net 10,650 10,972 11,294 11,616 8,768 10,971 6,280
Total average tangible equity$317,524 $309,686 $304,989 $297,387 $295,432 $310,757 $292,746
Return on average equity - GAAP 12.57 % 11.50 % 11.50 % 11.52 % 11.13 % 11.86 % 12.17 %
Return on average tangible equity -
Non-GAAP
15.53 % 14.28 % 14.34 % 14.45 % 13.82 % 14.72 % 14.90 %


Contact: Elizabeth B. Eckel Senior Vice President, Marketing Telephone: (401) 348-1309 E-mail: ebeckel@washtrust.com

Source:Washington Trust Bancorp, Inc.