10-K: Washington Trust Bancorp Reports Net Loss for 2024 Due to Balance Sheet Repositioning

Washington Trust Bancorp's 2024 results were impacted by balance sheet repositioning transactions, resulting in a net loss despite growth in wealth management and mortgage banking revenues.

Summary

• Washington Trust Bancorp reported a net loss of $28.1 million for 2024, compared to a net income of $48.2 million in 2023.
• The 2024 results were significantly impacted by balance sheet repositioning transactions, including the sale of lower-yielding loans and securities.
• Adjusted net income (non-GAAP) for 2024 was $40.9 million, a decrease of $4.1 million or 9% compared to $44.9 million in 2023.
• Total assets at December 31, 2024, were $6.9 billion, a decrease of $272.2 million from $7.2 billion at the end of 2023.
• Total loans decreased by $509.9 million to $5.1 billion, primarily due to a decrease in residential real estate loans.
• Total deposits decreased by $232.4 million to $5.1 billion, reflecting a decrease in wholesale brokered time deposits.
• Wealth management revenues increased by $3.5 million, or 10%, to $39.1 million, driven by growth in asset-based revenues.
• Mortgage banking revenues increased by $4.3 million, or 65%, to $11.0 million, due to higher sales volume and yields.
• Net interest income decreased by $8.7 million, or 6%, to $128.4 million.
• The net interest margin (NIM) was 1.87% in 2024, down 18 basis points from 2.05% in 2023.
• The provision for credit losses decreased by $800 thousand, or 25%, to $2.4 million.
• The allowance for credit losses (ACL) on loans was $42.0 million, representing 0.82% of total loans at December 31, 2024.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While there are positives like growth in wealth management and mortgage banking, the overall sentiment is negative due to the reported net loss and decreased profitability metrics. The balance sheet repositioning is a strategic move, but its immediate impact was unfavorable.

Positives

• Wealth management revenues increased by 10% due to growth in AUA.
• Mortgage banking revenues increased by 65% due to higher sales volume and yields.
• The Corporation completed an equity offering, strengthening its capital position.
• The balance sheet repositioning is expected to improve future revenues and capital generation.
• In-market deposits increased by 3%.

Negatives

• The Corporation reported a net loss of $28.1 million for 2024.
• Net interest income decreased by 6% due to higher funding costs.
• The net interest margin decreased by 18 basis points.
• Total loans decreased by 9% due to a decline in residential real estate loans.
• Total deposits decreased by 4% due to a decline in wholesale brokered time deposits.

Risks

• Inflationary pressures and increases in market interest rates may affect results of operations and financial condition.
• Fluctuations in interest rates may impair the Bank's business.
• The ACL on loans may not be adequate to cover actual loan losses.
• The market price and trading volume of the stock can be volatile.
• The company may need to raise additional capital in the future and such capital may not be available when needed.
• The company operates in a highly regulated industry, and laws and regulations, or changes in them, could limit or restrict activities and could have a material adverse effect on operations.

Future Outlook

The Corporation expects the balance sheet repositioning to favorably impact future revenues and provide additional capacity for growth and investment.

Management Comments

• Management believes deferred tax assets, net of the valuation allowance, are more-likely-than-not to be realized.
• Management believes the key to future growth is providing customers with convenient in-person service and digital banking solutions.
• Management is of the opinion, based on its review with counsel of the development of such matters to date, that the ultimate disposition of such matters will not materially affect the consolidated financial position or results of operations of the Corporation.

Industry Context

The document notes that the financial services industry is undergoing rapid technological changes and faces strong competition from larger institutions, credit unions, and non-bank lenders. It also highlights the increasing scrutiny from bank supervisors and aggressive enforcement of federal and state regulations.

Comparison to Industry Standards

• The document mentions the KBW Nasdaq Regional Banking Index as a benchmark for stock performance.
• The document mentions that the Corporation utilizes a third-party credit modeling tool based on observable market data, which assists management in identifying any potential credit risk associated with available for sale debt securities.
• The document mentions that the Corporation has adopted the three lines of defense concept that is an industry best practice for ERM.

Legal Proceedings

• On September 27, 2023, the Bank entered into a settlement with the DOJ through an agreement to resolve allegations that it violated fair lending laws in the state of Rhode Island from 2016 to 2021.
• On February 5, 2024, the American Bankers Association, the U.S. Chamber of Commerce, the Independent Community Bankers of America, along with four state trade associations jointly sued the Federal Reserve, FDIC, and Office of Comptroller of the Currency for exceeding their statutory authority in adopting revised regulations to implement the Community Reinvestment Act.

Stakeholder Impact

• Shareholders experienced a net loss and a decrease in book value per share.
• Customers may see changes in loan and deposit product offerings.
• Employees may be affected by changes in compensation and benefits.
• The community may benefit from the Bank's commitment to community outreach and marketing efforts.

Next Steps

• The Bank expects to complete the sales-leaseback transaction for the remaining branch location later in 2025.
• The qualified pension plan liability will be settled in the first quarter of 2025.
• The Corporation expects to transfer remaining surplus plan assets of approximately $10.3 million directly to the Corporations 401(k) Plan (a qualified replacement plan) to fund future non-elective employer contributions.

Key Dates