Washington Trust Bancorp, Inc. (NASDAQ:WASH) Q4 2023 Earnings Call Transcript
Washington Trust Bancorp, Inc. (NASDAQ:WASH) Q4 2023 Earnings Call Transcript January 25, 2024
Washington Trust Bancorp, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning and welcome to Washington Trust Bancorp Inc.'s Conference Call. My name is Seb and I'll be your operator today. [Operator Instructions]. Today's call is being recorded. I will now turn the call over to Elizabeth B. Eckel, Executive Vice President, Chief Marketing and Corporate Communications Officer. Ms. Eckel?
Elizabeth Eckel: Thank you. Good morning and welcome to Washington Trust Bancorp Inc.'s conference call for the fourth quarter and year-end 2023. Joining us this morning are members of Washington Trust's executive team; Ned Handy, Chairman and Chief Executive Officer; Mary Noons, President and Chief Operating Officer; and Ron Ohsberg, Senior Executive Vice President and Chief Financial Officer and Treasurer; and Bill Wray, Senior Executive Vice President and Chief Risk Officer. Please note that today's presentation may contain forward-looking statements and actual results could differ materially from what is discussed - on today's call. Our complete Safe Harbor statement is contained in our earnings release, which was issued yesterday as well as other documents that we filed with the SEC.
All of these materials and public filings are available on our Investor Relations website at ir.washtrust.com. Washington Trust trades on the NASDAQ under the symbol WASH. I'm pleased now to introduce Washington Trust's host - Washington Trust's Chairman and Chief Executive Officer, Ned Handy.
Ned Handy: Thank you, Beth. Good morning, everybody and thanks for joining us for our call. We definitely appreciate your time and interest. And I know we have a busy morning this morning, so I'm going to be fairly quick in my comments. Then Ron will dive into the fourth quarter performance and then Mary Noons and Bill Wray will join us for Q&A. We continue to be focused on ensuring a durable balance sheet that is positioned, to take advantage of opportunity, as external conditions improve. We're concentrating on capital credit deposits, and expense management all to prepare for what we believe will be a steadily improving external environment throughout 2024. In that way, we'll remain positioned to resume growth of our long-term focused profitable relationship-driven company.
On the capital front, we've slowed asset growth and are managing our funding base, and expenses, to build earnings capacity. Our lenders are primarily focused on managing existing credit, raising deposits and attending, to the needs of our all-important customer base. We're emphasizing deposit growth and are looking particularly, at deposit-oriented segments of the economy. We've made some technology investments to supplement our deposit growth strategies, including the addition of an omni-channel automated deposit account opening tool. Our deposit franchise remains strong although understandably more expensive. We remain committed, to incremental branching and are pleased that our three newest branches opened within the past two years have almost $130 million in aggregate deposits.
Our average branch size remains above $200 million. We held end market deposits steady in the fourth quarter in a very competitive landscape, and through our continued efforts and focus, we will drive growth in future periods. While there are signs of a stabilizing economy, it is difficult to gain short-term certainty about rates, inflation, the credit cycle and other aspects of the general economy. Our focus is on what we can control and on protecting and enhancing our customer base and the experience they have with us. Included in our expense focus is a detailed look at our real estate footprint, both leased and owned. We will right-size our footprint and look at appropriate ways, to unlock capital and reduce expenses, where able. Our employees always provide reason to be optimistic, both according to our customers and reflected in the recognition we've received from Newsweek, Forbes, American Banker and Blue Cross as a great and healthy place to work.
In summary, we are positioned to ensure stability and to regain our customary strength in the quarters ahead. We have a strong and dedicated team, a known brand, very strong credit statistics, sufficient capital in an appropriate short-term strategy, to weather the current challenges and to - enhance franchise value. At this point, I'll turn it over to Ron for a more detailed review of the quarter. Ron?
Ron Ohsberg: Okay. Thank you, Ned. Good morning, everyone and thanks for joining us. As Ned mentioned, fourth quarter net income was $12.9 million or $0.76 per diluted share. This includes a tax item of $3.3 million that added $0.19 to EPS. Net interest income was $32.7 million, down by $1.1 million or 3%. The margin was $188, down by nine basis points. Average earning assets increased by $103 million and the yield on those assets was $481 up by 12 basis points. On the funding side, average wholesale funding rose by $105 million and average end market interest-bearing deposits increased by $21 million. The rate on interest-bearing liabilities increased by 23 basis points to $349. Prepayment fee income was $27,000 in the fourth quarter and $71,000 in Q3, neither having any impact to margin.
Non-interest income was comprised 29% of total revenues and amounted to $13.3 million, down by $1.9 million, or 13%. Wealth management revenues were $8.9 million, down $67,000, or 1% reflecting a decrease of $58 million, or 1% in average AUA balances. End of period AUA totaled $6.6 billion, up by $457 million or 7% mainly reflecting market appreciation of $503 million. Mortgage banking revenues totaled $1.6 million, down by $554,000, or 26%. Of note, 64% of our originations in the quarter were saleable compared to 33% in the third quarter and we expect the improvement in that ratio to continue. Derivative income totaled $112,000 in the fourth quarter, down by $970,000. We do expect minimal derivative gains in 2024. Regarding expenses, these were down $1.8 million, or 5% from Q3.
Salaries expense decreased by $3.2 million, or 15% and reflected a $3.4 million in reductions, to performance-based compensation accruals. For the year, these reductions totaled $5.4 million. Other non-interest expenses were up by $1.3 million, or 56%, reflecting a $1 million contribution to our charitable foundation. Income taxes were a net benefit of $774,000 as noted in our release, this included a $3.3 million reduction in tax expense, due to a change in Massachusetts tax law. This increase Q4 and full year EPS by $0.19, excluding this adjustment the effective tax rate for Q4 would have been 20.4%, compared to 20.8% for Q3, and we estimate our full year 2024 effective tax rate to be 21.2%. Now turning to the balance sheet, total loans were up by $37 million or 1% from September 30, and by $538 million, or 11% from a year ago.
In the fourth quarter, total commercial loans increased by $36 million, or 1% essentially all in commercial real estate. Residential loans decreased by $7 million, consumer loans were up by $7 million. In-market deposits were down by $53 million or 1% from September 30, and up by $33 million, or 1% from a year ago. Uninsured and un-collateralized deposits are estimated to be 18% of total deposits. Our average deposit account balances $36,000 and we have $1.9 billion in contingent liquidity. Total equity amounted to $473 million, up by $41 million from the end of Q3. This included quarterly net income of $12.9 million and a $44 million increase in AOCI due to an increase in the fair value of AFS securities. This was partially offset by $9.6 million in dividends.
Regarding asset quality, non-accruing loans were 79 basis points in past due loans were 20 basis points of total loans. The increase in non-accruing loans was largely due to one pre-loan that was placed on non-accrual in the fourth quarter. This loan was current at December 31. The allowance totaled $41.1 million, or 73 basis points of total loans. The fourth quarter provision for credit losses was a charge of $1.2 million, up by $700,000 from the provision recognized in Q3 and we had net charge-offs of $406,000 in the fourth quarter, compared to $30,000 in Q3, and year-to-date net charge-offs totaled $520,000. And at this time, I will turn the call back to Ned.
Ned Handy: Thank you, Ron. And we can go right to questions.
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