Washington Trust in Westerly, R.I., rode gains in its lending portfolio and lower operating expenses to a higher second-quarter profit.  

The $3.3 billion-asset bank reported a profit of $9.8 million for the three-month period ending June 30, an increase of 10% from a year earlier. Earnings were 58 cents per common share, just shy of a 59-cent estimate of analysts polled by Bloomberg.

Strong returns from the bank's mortgage division fueled the rise in earnings. Net interest income increased by 9%, to $24.5 million. Total loans rose 8%, to $2.6 billion.

Meanwhile, the bank slashed its set-aside for bad loans, decreasing its provision for losses by 36%, to $450,000. Chargeoffs were $1.5 million, down 67%.

The net interest margin climbed nine basis point to 3.35%.

Earnings were also boosted by a drop in expenses, following the bank's first-quarter sale of its merchant processing business. Noninterest expenses fell 10%, to $22.4 million, on lower salary obligations.

Lower expenses helped compensate for a steep drop in noninterest income, which fell 22% to $12.8 million. The bank attributed the lower fees to a decrease in loan sales and divestiture of its merchant processing line.

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