NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns a senior unsecured debt rating of BBB, subordinated debt rating of BBB-, and short-term debt rating of K3 for Westerly, Rhode Island-based Washington Trust Bancorp, Inc. (NASDAQ: WASH) (“the company”). In addition, KBRA assigns deposit and senior unsecured debt ratings of BBB+, a subordinated debt rating of BBB, and short-term deposit and debt ratings of K2 for the lead subsidiary, The Washington Trust Company, of Westerly. The Outlook for all long-term ratings is Stable.
The ratings reflect strong risk-adjusted earnings (averaging ~1.80% since 2018) underpinned by strong fee income (>30% of total revenues) and a relatively lower risk balance sheet due in part to moderate concentration to mortgages and fairly limited C&D exposure. Additionally, core earnings stability reflect a consistently low operating expense base. Fee income is driven by a well-established and scalable wealth management business ($6 billion in AUM), which typically drives ~60% of total fee revenues. This, with reliable mortgage banking fees, provide meaningful offsets to a below average NIM (2.40% range in 1H2020), partly limited by the mortgage concentrations and higher than average funding costs. Credit quality has been solid over time with the NPA and charge-off ratios tracking better than peers, reflecting a seasoned management team centered on disciplined underwriting and strong credit administration. The ratings are counterbalanced by a funding profile characterized by fairly elevated noncore funding and its comparatively higher cost of funds as well as partly limited retail deposit scale. However, we note secondary liquidity is ample with over $1 billion in unencumbered liquidity capacity. Regulatory capital ratios, while sufficient for its overall balance sheet risk profile, track slightly below many higher rated peers with similar fee income scale and investor CRE concentrations. However, KBRA acknowledges solid LTV coverages and the fairly stable economies of its operating footprint. COVID-19 at-risk exposures (~116% of RBC), driven by retail (~76% of RBC), are generally in line with KBRA peers, and viewed as manageable.
KBRA continues to monitor the potential direct and indirect effects of the coronavirus on the banking and other sectors. Please refer to our publication U.S. Bank 2Q 2020 Ratings Compendium for our latest thoughts.
The ratings are based on KBRA’s Bank & Bank Holding Company Global Rating Methodology published on October 16, 2019.
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.