Washington Trust Bancorp (WASH)

Regional bank Washington Trust Bancorp (NASDAQ:WASH) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 16.2% year on year to $56.69 million. Its non-GAAP profit of $0.56 per share was 20.6% above analysts’ consensus estimates.

Company Overview

Founded in 1800 and operating as Rhode Island's oldest community bank, Washington Trust Bancorp (NASDAQ:WASH) is a regional bank holding company offering commercial banking, mortgage lending, personal banking, and wealth management services.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Washington Trust Bancorp competes with other New England regional and community banks like Brookline Bancorp (NASDAQ:BRKL), Cambridge Bancorp (NASDAQ:CATC), and Berkshire Hills Bancorp (NYSE:BHLB), as well as larger institutions operating in the region such as Citizens Financial Group (NYSE:CFG) and Bank of America (NYSE:BAC).

Two primary revenue streams drive bank earnings. While net interest income, which is earned by charging higher rates on loans than paid on deposits, forms the foundation, fee-based services across banking, credit, wealth management, and trading operations provide additional income. Unfortunately, Washington Trust Bancorp struggled to consistently increase demand as its $212.7 million of revenue for the trailing 12 months was close to its revenue five years ago. This was below our standards and suggests it’s a low quality business.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Washington Trust Bancorp’s annualized revenue growth of 2.3% over the last two years is above its five-year trend, but we were still disappointed by the results. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Washington Trust Bancorp reported year-on-year revenue growth of 16.2%, and its $56.69 million of revenue exceeded Wall Street’s estimates by 2.1%.

Net interest income made up 66.9% of the company’s total revenue during the last five years, meaning lending operations are Washington Trust Bancorp’s largest source of revenue.

While banks generate revenue from multiple sources, investors view net interest income as the cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of non-interest income.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Washington Trust Bancorp, its EPS declined by 8.7% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Washington Trust Bancorp, its two-year annual EPS declines of 9.8% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q3, Washington Trust Bancorp reported adjusted EPS of $0.56, down from $0.64 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Washington Trust Bancorp’s full-year EPS of $2.44 to grow 25.3%.

Banks operate as balance sheet businesses, with profits generated through borrowing and lending activities. Valuations reflect this reality, emphasizing balance sheet strength and long-term book value compounding ability.

Because of this, tangible book value per share (TBVPS) emerges as the critical performance benchmark. By excluding intangible assets with uncertain liquidation values, this metric captures real, liquid net worth per share. Traditional metrics like EPS are helpful but face distortion from M&A activity and loan loss accounting rules.

Washington Trust Bancorp’s TBVPS declined at a 1.6% annual clip over the last five years. However, TBVPS growth has accelerated recently, growing by 6.9% annually over the last two years from $21.36 to $24.39 per share.

Over the next 12 months, Consensus estimates call for Washington Trust Bancorp’s TBVPS to grow by 5% to $25.62, lousy growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Washington Trust Bancorp has averaged a Tier 1 capital ratio of 11.1%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity, or ROE, quantifies bank profitability relative to shareholder equity - an essential capital source for these institutions. Over extended periods, superior ROE performance drives faster shareholder wealth compounding through reinvestment, share repurchases, and dividend growth.

Over the last five years, Washington Trust Bancorp has averaged an ROE of 9%, uninspiring for a company operating in a sector where the average shakes out around 7.5%.

It was good to see Washington Trust Bancorp beat analysts’ EPS expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock remained flat at $28.85 immediately following the results.

Are you wondering whether to buy Washington Trust Bancorp or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

We see the value of companies driving economic growth, but in the case of Washington Trust Bancorp, we’re out. To begin with, its revenue growth was weak over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its TBVPS has declined over the last five years. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Washington Trust Bancorp’s P/B ratio based on the next 12 months is 1x. This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $30.75 on the company (compared to the current share price of $28.85).