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Strategic Moves by Washington Trust Bancorp

Washington Trust Bancorp, Inc. (Nasdaq: WASH), the parent company of The Washington Trust Company, based in Westerly, has recently revealed its plans for a major balance sheet repositioning. This move is designed to not only fuel continued organic growth but also to enhance the generation of capital in the coming years.

In the face of rapid interest rate hikes observed over the past few years, Washington Trust has found itself, like many financial institutions, grappling with low-yielding assets that have underperformed in the current market. Edward "Ned" O. Handy III, the Chairman and CEO of Washington Trust, expressed that these assets were yielding interest rates that fall significantly below current market standards. This trend has adversely impacted the bank's earnings potential and has constrained their ability to reinvest and expand its operations effectively.

Through proactive measures, Washington Trust successfully raised around $70 million in capital targeted for the disposal of these low-yielding assets. The plan includes the sale of approximately $409 million in available-for-sale debt securities, which have an average yield of 2.65%. Additionally, the bank is preparing to sell roughly $345 million in residential mortgage loans that currently have an average interest rate of 3.03%. This sale is anticipated to finalize in the first quarter of 2025, marking a significant shift towards more favorable investments.

The transition is not merely about cutting losses; it is a calculated strategy to reinvest around $378 million into new available-for-sale debt securities, this time with an average yield of 5.30%. Handy further highlighted that this approach not only bolsters growth but also fortifies the bank's financial standing, ultimately aiming for better profitability prospects in 2025 and beyond.

In conjunction with these sales, Washington Trust plans to reduce its wholesale funding balance by approximately $352 million, with an expected average rate of 4.50% to further streamline their financial obligations. The balance sheet adjustments are projected to incur a net after-tax loss of around $70 million, which will be reflected in the bank's fourth-quarter earnings for 2024. While this loss is significant, it has been entirely mitigated through the capital raised from the equity offering, ensuring that the bank can sustain its operations without jeopardizing future stability.

The specifics of these financial maneuvers will be elaborated in a presentation that will be made available in a Form 8-K submission to the Securities and Exchange Commission (SEC). Interested parties can also find comprehensive details on the bank’s official website.

A Legacy of Financial Service

Washington Trust Bancorp, established in 1800, holds the title of being the oldest community bank in the United States and is also the largest state-chartered bank based in Rhode Island. With nearly $7.1 billion in assets as of September 30, 2024, Washington Trust has cultivated a reputation as one of the leading financial service entities in the Northeastern region.

Their offerings span a diverse range of services, including commercial banking, personal banking, mortgage banking, and wealth management. Washington Trust prides itself on its commitment to community engagement, striving to improve the financial well-being of individuals, businesses, and organizations throughout New England.

Looking forward, the bank is committed to leveraging this balance sheet repositioning as a springboard for growth. By navigating through the impacts of economic shifts and interest rate fluctuations, Washington Trust aims to enhance its competitive edge in the financial market, thereby securing a robust foundation for the future.

In summary, Washington Trust Bancorp is poised to strategically reposition its balance sheet, paving the way for enhanced growth and long-term profitability while remaining dedicated to serving its communities effectively.