W.T.B. FINANCIAL CORPORATION Peter F. Stanton
Chairman of the Board and
Chief Executive Officer
April 18, 2024
Dear Shareholders:
The focus of the macro environment remains solidly on inflation, interest rates and Federal Reserve monetary policy. The Fed's sharp rise in rates in 2022 and 2023 helped bring inflation down dramatically from its peak, but that last mile to the Fed's stated inflation target of 2.00 percent is proving difficult to accomplish. The most recent Consumer Price Index reading came in at 3.5 percent in March, indicating the Fed has more work to do. The yield curve has been inverted for nearly two years, signifying that the economy will slow, inflation will subside, and rates will come down. But GDP growth of 3.1 percent in the fourth quarter and a persistently low unemployment rate of 3.8 percent in March suggest the Fed's sharp rise in rates has yet to have a significant impact on these two key barometers of economic strength.
The broader economy is the environment in which we operate, but internally, we remain focused on taking care of our clients, growing the business and executing on our long- range plan. Importantly, restoring profitability to more historically normal levels is a top priority. Significant progress has been made adapting to higher interest rate levels and we expect more progress this year. Deposit balances seem to have stabilized with deposit growth in the second half of 2023 and moderate drawdowns in the first quarter of 2024, as is seasonally typical. Deposit pricing faces upward pressure, but that seems to be easing somewhat as our rate offerings have been adjusting to higher market levels. We paid-off a significant amount of our wholesale borrowings in March and expect to make more pay-downs on maturities in the second quarter. For over a year, our new loan origination activity has been at rates well above average portfolio yields and that is an important part of recycling loan yields to higher market levels and growing balance sheet earning power. Recalibrating the balance sheet to current interest rate levels will take time, but the process is well underway.
Earnings in the first quarter totaled $11.4 million, up $653,000, or 6.1 percent higher than fourth quarter results. The improvement was largely due to higher noninterest revenue from bank cards and our wealth management business. On a per share basis, earnings were $4.53, up $0.25 per share, or 5.9 percent from fourth quarter levels. Return on assets was 0.39 percent and return on equity was 5.08 percent, and with both metrics well below typical performance levels, we are working hard to make
Washington Trust Financial Center | Phone 509.353.BANK (2265) |
P.O. Box 2127 | Outside Spokane 1.800.788.4578 |
Spokane, WA 99210-2127 | watrust.com |
improvements to our results. Book value per share finished the quarter at $357.34, up $1.81, or 0.5 percent for the quarter and up $11.57, or 3.3 percent year-over-year.
The path forward will be largely about balance sheet dynamics and normalization of asset yields, funding costs and margin. The balance sheet dynamics we are experiencing include deposit base stability and growth, the pay-down of wholesale borrowings and continued loan growth. Total assets for the quarter declined $506 million, or 4.4 percent to $10.9 billion. The decline in assets was primarily due to a $350 million reduction to $1.1 billion in Bank Term Funding Program ("BTFP") borrowings from the Federal Reserve and a $151 million, or 1.9 percent decrease in deposits to $8.0 billion. The decline in deposits was well within historical, seasonal patterns, which reflects a variety of factors, including the collective need across our client base to draw down deposits to pay taxes. That roughly $500 million decline in funding was met through on balance sheet cash, which declined $448 million to $558 million and cash flow back from the bond portfolio. Bond balances declined $106 million during the quarter to $3.5 billion. Loan growth during the quarter was $74 million, or 1.1 percent, while loan growth year-over-year was significant at $485 million, or 7.9 percent to $6.6 billion.
Balance sheet normalization over time is only half the story of improving performance; yields, costs and margin are also crucial elements to restoring earning power. Margin for the quarter narrowed 7 basis points ("bps") to 2.35 percent. That narrowing was due to funding costs increasing more than earning asset yields. Overall funding costs for the quarter increased 21 bps to 2.31 percent, while earning asset yields increased 13 bps to 4.49 percent. The rate of increase in funding costs seems to be slowing, while earning asset yields continue to grow as yields on new loan originations are well above average portfolio yields. This process, along with the reduction in more expensive wholesale borrowings is a path towards restored earning power. The stabilization in earnings generation is showing itself in roughly steady net interest revenue of $67 million over the past four quarters, despite narrowing margin. Net interest revenue in the first quarter declined quarter-over-quarter by $700,000, or 1.0 percent to $67.1 million.
While focusing on improving our performance, we also remained focused on balance sheet strength and our key risk parameters. Shareholder's equity for the quarter increased $3.7 million, or 0.4 percent to $901 million, which combined with the decline in assets, resulted in a 40 bps improvement in our equity to assets ratio to 8.24 percent. Our on-balance sheet liquidity position finished the quarter with significant resources as cash totaled $558 million and secured borrowing capacity at the Federal Reserve and Federal Home Loan Bank was well in excess of $4.0 billion. The credit performance of our loan portfolio remained very good with noncurrent loans totaling $31 million, or 0.47 percent of loans, while our capacity to withstand credit losses was significant with an allowance for credit losses of $148 million, or 2.25 percent of loans.
Washington Trust Financial Center | Phone 509.353.BANK (2265) |
P.O. Box 2127 | Outside Spokane 1.800.788.4578 |
Spokane, WA 99210-2127 | watrust.com |
As you know, on February 27, 2024, the Board of Directors reauthorized a share repurchase plan for up to $10.0 million of Class B common stock, which will be in effect over a twelve-month period. Common share repurchases under this plan, if any, may be made from time to time on the open market through broker dealers or in privately negotiated transactions, at the discretion of Company management. The extent to which the Company purchases shares and the timing of any such purchases will depend upon a variety of factors, including market conditions and relevant corporate considerations. The share repurchase program will be conducted in a manner intended to comply with the safe harbor provisions of Rule 10b-18 under the Securities and Exchange Act of 1934. Under the current authorization, we purchased 9,600 shares of Class B common stock during the first quarter for a total consideration of $2.6 million.
While the external operating environment is posing challenges, the team is very focused on executing on our strategic plan. We remain committed to enhancing our systems and the capabilities they deliver, leveraging our data and digital platforms, and delivering an ever-improving customer experience for our clients. We are dedicated to providing our team with the resources they need to execute on our strategies. While we have already accomplished a lot, our list of key initiatives remains impressive and I am told that with technology constantly evolving, "we will never be done." Candidly, the notion of never being done is a little disconcerting, but it reflects our dedication to continuous improvement and the importance of evolving with industry capabilities and client needs. A culture of striving to get better each day is necessary in today's hyper- evolving and competitive world. When I look at our team, I am impressed with all they have accomplished and am confident in their ability to lead us into the future.
Our opportunity to run the bank, serve our clients, meet the needs of the communities we serve and deliver for our shareholders would not be possible without your continued trust and support. We are grateful for your confidence and are working hard to deliver on your behalf. We look forward to seeing many of you at our upcoming annual shareholders' meeting on April 22nd at 1:30 p.m. at our headquarters building at 717 West Sprague Avenue, Spokane, Washington. For additional pertinent information, please also visit our Investor Relations webpage at watrust.com/about/investor- relations.
Warm Regards,
Pete Stanton
Chairman of the Board and CEO
Enclosure
Washington Trust Financial Center | Phone 509.353.BANK (2265) |
P.O. Box 2127 | Outside Spokane 1.800.788.4578 |
Spokane, WA 99210-2127 | watrust.com |
Summary Financial Statements,
Selected Financial Highlights and
Selected Credit Performance Highlights
Q1 2024
(unaudited)
W.T.B. Financial Corporation
Condensed Consolidated Statements of Financial Condition
(unaudited)
(dollars in thousands) | ||||||
Three Months Ended | ||||||
March 31, | December 31, | March 31, | ||||
2024 | 2023 | 2023 | ||||
ASSETS | ||||||
Cash and due from banks | $ | 88,210 | $ | 138,518 | $ | 135,345 |
Interest-bearing deposits with banks | 558,337 | 1,006,525 | 341,116 | |||
Securities available for sale, at fair value | 413,403 | 485,691 | 532,967 | |||
Securities held to maturity, at amortized cost | 3,045,905 | 3,079,857 | 3,197,382 | |||
Federal Home Loan Bank and Pacific Coast Bankers' Bancshares | ||||||
stock, at cost | 28,808 | 28,808 | 18,780 | |||
Loans receivable | 6,584,271 | 6,510,128 | 6,099,479 | |||
Allowance for credit losses on loans | (147,848) | (146,156) | (138,976) | |||
Loans, net of allowance for credit losses on loans | 6,436,423 | 6,363,972 | 5,960,503 | |||
Premises and equipment, net | 88,510 | 85,708 | 86,812 | |||
Accrued interest receivable | 38,497 | 35,879 | 30,177 | |||
Other assets | 241,348 | 220,633 | 212,268 | |||
Total assets | $ | 10,939,441 | $ | 11,445,591 | $ | 10,515,350 |
LIABILITIES | ||||||
Deposits: | ||||||
Noninterest-bearing | $ | 3,087,090 | $ | 3,316,555 | $ | 3,907,576 |
Interest-bearing | 4,880,321 | 4,801,747 | 4,420,554 | |||
Total deposits | 7,967,411 | 8,118,301 | 8,328,130 | |||
Securites sold under agreements to repurchase | 320,857 | 336,961 | 129,519 | |||
Other borrowings | 1,565,000 | 1,915,000 | 1,068,000 | |||
Accrued interest payable | 36,823 | 53,919 | 2,412 | |||
Other liabilities | 148,215 | 123,967 | 115,301 | |||
Total liabilities | 10,038,306 | 10,548,148 | 9,643,363 | |||
SHAREHOLDERS' EQUITY | ||||||
Common stock | 11,076 | 13,222 | 11,143 | |||
Surplus | 32,665 | 32,665 | 32,665 | |||
Undivided profits | 898,630 | 891,901 | 872,207 | |||
942,371 | 937,788 | 916,015 | ||||
Accumulated other comprehensive loss, net of tax | (41,236) | (40,345) | (44,028) | |||
Total shareholders' equity | 901,135 | 897,443 | 871,987 | |||
Total liabilities and shareholders' equity | $ | 10,939,441 | $ | 11,445,591 | $ | 10,515,350 |
W.T.B. Financial Corporation
Condensed Consolidated Statements of Income
(unaudited)
(dollars in thousands, except per share data) | ||||||
Three Months Ended | ||||||
March 31, | December 31, | March 31, | ||||
2024 | 2023 | 2023 | ||||
INTEREST REVENUE | ||||||
Loans, including fees | $ | 92,171 | $ | 91,044 | $ | 78,263 |
Deposits with banks | 18,933 | 14,127 | 2,422 | |||
Securities | 16,448 | 16,879 | 17,847 | |||
Other interest and dividend income | 553 | 261 | 81 | |||
Total interest revenue | 128,105 | 122,311 | 98,613 | |||
INTEREST EXPENSE | ||||||
Deposits | 31,461 | 29,556 | 10,651 | |||
Funds purchased and other borrowings | 29,582 | 24,993 | 6,163 | |||
Total interest expense | 61,043 | 54,549 | 16,814 | |||
Net interest revenue | 67,062 | 67,762 | 81,799 | |||
Provision for credit losses | 2,020 | 2,490 | 2,400 | |||
Net interest revenue after provision for credit losses | 65,042 | 65,272 | 79,399 | |||
NONINTEREST REVENUE | ||||||
Fiduciary and investment services income | 7,964 | 7,321 | 6,748 | |||
Bank and credit card fees, net | 2,888 | 1,947 | 4,094 | |||
Service charges on deposits | 1,668 | 1,341 | 1,453 | |||
Mortgage banking revenue, net | 442 | 257 | 242 | |||
Other income | 3,029 | 3,719 | 2,470 | |||
Total noninterest revenue | 15,991 | 14,585 | 15,007 | |||
NONINTEREST EXPENSE | ||||||
Salaries and benefits | 40,651 | 37,204 | 41,136 | |||
Occupancy, furniture and equipment expense | 6,746 | 6,631 | 6,833 | |||
Software and data processing expense | 6,809 | 6,509 | 5,913 | |||
Professional fees | 1,755 | 2,401 | 1,989 | |||
Other expense | 10,715 | 13,570 | 10,110 | |||
Total noninterest expense | 66,676 | 66,315 | 65,981 | |||
Income before provision for income taxes | 14,357 | 13,542 | 28,425 | |||
Provision for income taxes | 2,979 | 2,817 | 6,173 | |||
NET INCOME | $ | 11,378 | $ | 10,725 | $ | 22,252 |
PER SHARE DATA | ||||||
Weighted average number of common stock shares outstanding | ||||||
Basic | 2,508,910 | 2,505,726 | 2,502,465 | |||
Diluted | 2,510,181 | 2,506,544 | 2,505,194 | |||
Earnings per common share (based on weighted average | ||||||
shares outstanding) | ||||||
Basic | $ | 4.54 | $ | 4.28 | $ | 8.89 |
Diluted | $ | 4.53 | $ | 4.28 | $ | 8.88 |
W.T.B. Financial Corporation
Selected Financial Highlights
(unaudited)
(dollars in thousands) | |||||||||
Quarters Ended | |||||||||
March 31, | December 31, | September 30, | June 30, | March 31, | |||||
2024 | 2023 | 2023 | 2023 | 2023 | |||||
SELECTED DATA | |||||||||
Interest-bearing deposits with banks | $ | 558,337 | $ 1,006,525 | $ | 988,411 | $ | 372,671 | $ | 341,116 |
Securities | 3,459,308 | 3,565,548 | 3,577,332 | 3,669,532 | 3,730,349 | ||||
Total loans | 6,584,271 | 6,510,128 | 6,443,189 | 6,285,985 | 6,099,479 | ||||
Allowance for credit losses (ACL) on loans | 147,848 | 146,156 | 144,378 | 141,009 | 138,976 | ||||
Earning assets 1 | 10,666,773 | 11,146,670 | 11,088,508 | 10,389,254 | 10,231,511 | ||||
Total assets | 10,939,441 | 11,445,591 | 11,358,352 | 10,646,978 | 10,515,350 | ||||
Deposits | 7,967,411 | 8,118,301 | 8,041,591 | 7,881,909 | 8,328,130 | ||||
Interest-bearing liabilities | 6,766,177 | 7,053,707 | 6,891,530 | 6,118,466 | 5,618,074 | ||||
Total shareholders' equity | 901,135 | 897,443 | 878,639 | 876,401 | 871,987 | ||||
Total equity to total assets | 8.24% | 7.84% | 7.74% | 8.23% | 8.29% | ||||
Full-time equivalent employees | 1,186 | 1,186 | 1,196 | 1,189 | 1,166 | ||||
ASSET QUALITY RATIOS | |||||||||
ACL on loans to total loans | 2.25% | 2.25% | 2.24% | 2.24% | 2.28% | ||||
ACL on loans to noncurrent loans | 479% | 464% | 2987% | 2548% | 3417% | ||||
Net charge-offs to total average loans | 0.01% | 0.01% | 0.00% | 0.00% | 0.01% | ||||
Noncurrent loans to total loans | 0.47% | 0.48% | 0.08% | 0.09% | 0.07% |
(1) Includes only the amortized cost for securities. Includes non-accrual loans.
(dollars in thousands, except per share data) | ||||||||
Quarters Ended | % Change | |||||||
March 31, | December 31, | March 31, | Sequential | Year over | ||||
2024 | 2023 | 2023 | Quarter | Year | ||||
PERFORMANCE | ||||||||
Net interest revenue, fully tax-equivalent | $ | 67,142 | $ | 67,848 | $ | 81,867 | -1.0% | -18.0% |
Fully tax-equivalent adjustment | 80 | 86 | 68 | -7.0% | 17.6% | |||
Net interest revenue | 67,062 | 67,762 | 81,799 | -1.0% | -18.0% | |||
Provision for credit losses | 2,020 | 2,490 | 2,400 | -18.9% | -15.8% | |||
Net interest revenue after provision for credit losses | 65,042 | 65,272 | 79,399 | -0.4% | -18.1% | |||
Noninterest revenue | 15,991 | 14,585 | 15,007 | 9.6% | 6.6% | |||
Noninterest expense | 66,676 | 66,315 | 65,981 | 0.5% | 1.1% | |||
Income before provision for income taxes | 14,357 | 13,542 | 28,425 | 6.0% | -49.5% | |||
Provision for income taxes | 2,979 | 2,817 | 6,173 | 5.8% | -51.7% | |||
Net income | $ | 11,378 | $ | 10,725 | $ | 22,252 | 6.1% | -48.9% |
PER COMMON SHARE | ||||||||
Earnings per common share - basic | $ | 4.54 | $ | 4.28 | $ | 8.89 | 6.1% | -48.9% |
Earnings per common share - diluted | 4.53 | 4.28 | 8.88 | 5.8% | -49.0% | |||
Common cash dividends | 1.85 | 1.85 | 1.85 | 0.0% | 0.0% | |||
Common shareholders' equity | 357.34 | 355.53 | 345.77 | 0.5% | 3.3% | |||
Quarters Ended | % Change | |||||||
March 31, | December 31, | March 31, | Sequential | Year over | ||||
2024 | 2023 | 2023 | Quarter | Year | ||||
PERFORMANCE RATIOS | ||||||||
Return on average assets | 0.39% | 0.37% | 0.87% | 0.02% | -0.48% | |||
Return on average shareholders' equity | 5.08% | 4.78% | 10.49% | 0.30% | -5.41% | |||
Margin on average earning assets 1 | 2.35% | 2.42% | 3.29% | -0.07% | -0.94% | |||
Noninterest expense to average assets | 2.28% | 2.31% | 2.59% | -0.03% | -0.31% | |||
Noninterest revenue to average assets | 0.55% | 0.51% | 0.59% | 0.04% | -0.04% | |||
Efficiency ratio | 80.2% | 80.4% | 68.1% | -0.2% | 12.1% | |||
Common cash dividends to net income | 40.86% | 43.22% | 20.83% | -2.36% | 22.39% |
- Tax exempt interest has been adjusted to a taxable equivalent basis using a tax rate of 21%. NM = not meaningful
W.T.B. Financial Corporation
Selected Credit Performance Highlights
(unaudited) (dollars in thousands)
Quarters Ended | ||||||
March 31, | December 31, | March 31, | ||||
Loans by Credit Risk Rating: | 2024 | 2023 | 2023 | |||
Pass | $ | 6,312,018 | $ | 6,243,727 | $ | 5,887,608 |
Special Mention | 183,439 | 169,621 | 123,042 | |||
Substandard | 88,768 | 96,763 | 88,801 | |||
Doubtful/Loss | 46 | 17 | 28 | |||
Total | $ | 6,584,271 | $ | 6,510,128 | $ | 6,099,479 |
Quarters Ended | ||||||
March 31, | December 31, | March 31, | ||||
Loans by Payment Status: | 2024 | 2023 | 2023 | |||
Current Loans | $ | 6,546,261 | $ | 6,469,742 | $ | 6,088,000 |
Loans Past Due 30-89 Days, Still Accruing | 7,137 | 8,914 | 7,412 | |||
Noncurrent Loans | 30,873 | 31,472 | 4,067 | |||
Total | $ | 6,584,271 | $ | 6,510,128 | $ | 6,099,479 |
Quarters Ended | ||||||
March 31, | December 31, | March 31, | ||||
Allowance Position: | 2024 | 2023 | 2023 | |||
Allowance for Loans | $ | 147,848 | $ | 146,156 | $ | 138,976 |
Allowance to Total Loans | 2.25% | 2.25% | 2.28% |
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WTB Financial Corporation published this content on 17 April 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 April 2024 04:05:02 UTC.
