8-K: Washington Trust Bancorp Reports Net Loss in Q4 2024 Due to Balance Sheet Repositioning

Washington Trust Bancorp reported a net loss of $60.8 million for the fourth quarter of 2024, primarily due to balance sheet repositioning transactions.

Summary

• Washington Trust Bancorp, Inc. reported a net loss of $60.8 million, or $3.46 per diluted share, for the fourth quarter of 2024.
• Excluding the impact of balance sheet repositioning, adjusted net income was $10.4 million, or $0.59 per diluted share.
• The Corporation completed an underwritten public offering of common stock at $34.00 per share, generating net proceeds of approximately $70.5 million.
• The Bank sold available for sale debt securities with an amortized cost balance of $409 million and reinvested the $378 million into securities with a higher weighted average yield.
• This sale resulted in a net pre-tax realized loss of $31.0 million.
• The Bank also committed to sell residential mortgage loans with an amortized cost balance of $345 million, resulting in a net pre-tax loss of $62.9 million.
• For the full year 2024, the Corporation reported a net loss of $28.1 million, or $1.63 per diluted share, compared to net income of $48.2 million, or $2.82 per diluted share, for the prior year.
• Excluding certain items, full-year 2024 adjusted net income was $40.9 million, or $2.37 per diluted share, compared to $44.9 million, or $2.63 per diluted share, in the prior year.
• The net interest margin was 1.95% in the fourth quarter, up from 1.85% in the previous quarter.
• Total loans amounted to $5.1 billion, down by 7% from the previous quarter.
• In-market deposits amounted to $4.8 billion, up by 1% from the previous quarter.

Sentiment

Score: 4

Explanation: The sentiment is slightly negative due to the reported net loss and the losses incurred from balance sheet repositioning. However, management expresses optimism about future performance, which mitigates the negative sentiment to some extent.

Positives

• The net interest margin increased by 10 basis points to 1.95% in the fourth quarter.
• Wealth management revenues increased by 1% in the fourth quarter.
• End of period assets under administration totaled $7.1 billion, up by 7% from December 31, 2023.
• Full-year 2024 mortgage banking revenues were $11.0 million, up by 65% from the same period in the prior year.
• In-market deposits increased by 1% from the previous quarter to $4.8 billion.
• Nonaccrual loans decreased to 0.45% of total loans.

Negatives

• The company reported a net loss of $60.8 million for the fourth quarter of 2024.
• The balance sheet repositioning resulted in significant losses from the sale of securities and loans.
• Total loans decreased by 7% from the previous quarter.
• Full-year 2024 net loss was $28.1 million, compared to a net income in the prior year.
• Noninterest income was a loss of $77.9 million for the fourth quarter of 2024.

Risks

• Changes in general business and economic conditions could impact future performance.
• Interest rate changes or volatility could affect the balance and mix of loans and deposits.
• Future credit losses could be higher than expected.
• Ongoing volatility in national and international financial markets poses a risk.
• Reductions in the market value or outflows of wealth management AUA could negatively impact revenues.
• Operational risks, including cybersecurity incidents and fraud, could disrupt business operations.

Future Outlook

The company expects the equity offering and balance sheet repositioning to favorably impact future revenues and provide additional capacity for growth and investment. The Corporation currently expects its full-year 2025 effective tax rate to be approximately 22.5%.

Management Comments

• Washington Trust's 2024 results reflect the strategic actions we took in December to reposition our balance sheet, stated Edward O. Handy III, Washington Trust Chairman and Chief Executive Officer.
• Though the sales resulted in a loss recognized in the fourth quarter, the equity offering and repositioning will favorably impact future revenues and provide additional capacity for growth and investment.
• This strategy has further strengthened our financial foundation, allowing us to focus on providing enhanced value for our shareholders, as well as the customers and communities we serve.

Industry Context

In a rising interest rate environment, banks often look to reposition their balance sheets to improve future profitability. Washington Trust's actions are consistent with this trend, although the immediate impact resulted in a net loss. Other regional banks may be undertaking similar strategies to optimize their asset and liability mix.

Comparison to Industry Standards

• Comparing Washington Trust's net interest margin of 1.95% to peers like Bank Rhode Island (1.88%) and Coastal Financial Corp (3.22%) shows a mixed performance.
• The efficiency ratio of 70.0% (adjusted) is comparable to regional banks like Independent Bank Corp (65.2%) but higher than more efficient institutions like First Foundation Inc (45.6%).
• The tangible book value per share of $22.46 is within the range of regional banks, but the recent capital raise has diluted this metric.
• The loan-to-deposit ratio of 105.5% is relatively high, indicating a reliance on borrowings to fund lending activities.

Stakeholder Impact

• Shareholders will be impacted by the net loss and the dilution from the equity offering.
• Customers may see changes in loan and deposit products as a result of the balance sheet repositioning.
• Employees may be affected by any restructuring or cost-cutting measures taken to improve profitability.

Next Steps

• The company will host a conference call on January 30, 2025, to discuss the results.
• The company will focus on implementing its balance sheet repositioning strategy to improve future revenues and growth.

Key Dates