Q1 2024 Washington Trust Bancorp Inc Earnings Call

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Operator: Good morning, and welcome to Washington Trust Bancorp Inc.'s conference call. My name is Brika, and I will be your operator today. If participants need assistance during the call at any time, please press star zero. Participants interested in asking a question at the end of the call should press star 1, to get through the queue. Today's call is being recorded. And now, I would like to turn the call over to Elizabeth B. Eckel, Executive Vice President, Chief Marketing and Corporate Communications Officer.

breaker: Good morning, and welcome to Washington Trust Bancorp, Inc. 's Conference call. My name is breaker and I will be your operator today.

breaker: If participants need assistance during the call any time. Please press Star then I.

breaker: Participants interested in asking a question then does it cool <expletive> press star one to get in the queue.

breaker: Today's call is being recorded and now I would like to turn the call over to Elizabeth B, a Cook executive Vice President Chief marketing and corporate Communications Officer Masako.

Elizabeth Boyle Eckel: Thank you. Good morning, and welcome to Washington Trust Bancorp Inc.'s conference call for the first quarter of 2024. Joining us this morning are members of Washington Trust's executive team, Ned Handy, Chairman and Chief Executive Officer, Mary Noons, President and Chief Operating Officer, Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer, and Treasurer, and Bill Wray, Senior Executive Vice President and Chief Risk Officer. Please note that today's presentation may contain forward-looking statements, and actual results could differ materially from what is discussed on today's call.

breaker: Yeah.

Elizabeth Boyle Eckel: Thank you good morning, and welcome to Washington Trust Bancorp, Inc. 's conference call for the 2024 first quarter. Joining us. This morning are members of Washington Trust Executive team, Ned Handy, Chairman and Chief Executive Officer, Mary News, President and Chief Operating Officer, Ron Osberg, Senior Executive Vice President and Chief Financial Officer.

Elizabeth Boyle Eckel: Then treasurer and Bill rate Senior Executive Vice President and Chief Risk Officer. Please note that today's presentation may contain forward looking statements and actual results could differ materially from what is discussed on today's call. Our complete safe Harbor statement is contained in our earnings release, which was issued earlier this morning as others.

Elizabeth Boyle Eckel: Our complete safe harbor statement is contained in our earnings release, which was issued earlier this morning, as well as other documents that are filed with the FDC. All of these materials and other public filings are available on our investor relations website at ir.washtrust.com. Washington Trust trades on NASDAQ under the symbol WASH. I'm now pleased to introduce today's host, Washington Trust Chairman and Chief Executive Officer, Ned Handy.

Speaker Change: Occupancy as well as other documents that are filed with the F. D. C. All of these materials and other public filings are available on our Investor Relations website at IR Dot Wash Trust Dotcom, Washington Trust trades on NASDAQ under the symbol wash I'm now pleased to introduce todays host, Washington trusts, Chairman and Chief Executive Officer.

Speaker Change: Ned handy.

Edward Otis Handy: Thank you, Beth, and good morning, and thank you all for joining our first quarter conference call. We appreciate your time and interest in Washington Trust. I'll provide brief comments, and then Ron Ohsberg will offer more detail regarding our first quarter performance. After our prepared remarks, Mary Noons and Bill Wray will join us for the Q&A session.

Edward Otis Handy: Thank you Beth and good morning, and thank you all for joining our first quarter conference call. We appreciate your time and interest in Washington Trust.

Edward Otis Handy: I'll provide brief comments and then Ron iceberg will offer more detail regarding our first quarter performance. After our prepared remarks, Mary Nunes and Bill Ray will join us for the Q&A session.

Edward Otis Handy: Our primary focus continues to be on ensuring the strength of our balance sheet while we work towards regaining historic levels of profit generation. We continue our concentration on capital, credit, deposit growth, and expense management, controlling what we can as the administration in Washington works to balance interest rates and inflation risks. We are positioning to take advantage of prudent growth opportunities as they present themselves going forward. We will soon roll out some deposit-related enhancements to power our deposit growth strategies, including the addition of an omni-channel automated deposit account opening.

Edward Otis Handy: Primary focus continues to be on ensuring the strength of our balance sheet, while we work towards regaining historic levels of profit generation. We continue our concentration on capital credit deposit growth and expense management controlling what we can as the administration in Washington works to balance interest rates and inflation risk.

Edward Otis Handy: We are positioning to take advantage of prudent growth opportunities as they present themselves going forward. We will soon roll out some deposit related enhancements to power our deposit growth strategies, including the addition of an omnichannel automated deposit account opening tool.

Edward Otis Handy: Overall, this quarter reflected the value of our diversified revenue base as our fee businesses somewhat offset continued margin pressure. It also reflected some good work the team has done to manage expenses in this inflationary environment. I'll now turn the call over to Ron for some more detail on the quarter, and then we'll be glad to address any questions.

Overall this quarter reflected the value of our diversified revenue base is our fee businesses somewhat offset continued margin pressure. It also reflected some good work. The team has done to manage expenses in this inflationary environment.

Edward Otis Handy: I'll now turn the call over to Ron for some more detail on the quarter and then we'll be glad to address any questions you might have Ryan okay. Thanks, Ned and good morning.

Ronald Stephen Ohsberg: Thanks, Ned, and good morning. First quarter net income was $10.9 million, or 64 cents per diluted share. Net interest income was $31.7 million, down by about $1 million, or 3%. The margin was $184, down by 4 basis points. Average earning assets increased by 23 million in the quarter and had a yield of 493, up by 12 basis points. On the funding side, average wholesale funding rose by $122 million, and average in-market interest-bearing deposits decreased by $21 million. The rate on interest-bearing liabilities increased by 14 basis points to 363. Prepayment fee income was $20,000 in the first quarter and $27,000 in the fourth quarter. No impact on margin was recorded in either period.

Ron: First quarter net income was $10 9 million or 64 per diluted share net.

Ron: Net interest income was $31 7 million down by about $1 million or 3%. The margin was 184 down by four basis points.

Ron: Average, earning assets increased by $23 million in the quarter and had a yield of 493 up by 12 basis points.

Ron: On the funding side average wholesale funding rose by $122 million and average end market interest bearing deposits decreased by $21 million the rate on interest bearing liabilities increased by 14 basis points to $3 63.

Prepayment fee income was 20000 in the first quarter and 27000 in the fourth quarter no impact to margin in either period.

Ron: Noninterest income comprised 35% of total revenues amounted to $17 2 million up by $3 9 million or 29% from Q4.

Ronald Stephen Ohsberg: Non-interest income comprised 35% of total revenues and amounted to $17.2 million, up by $3.9 million or 29% from Q4. The first quarter included $2.1 million associated with the litigation settlement. Excluding this, non-interest income was up by 1.8 million or 13% from Q4. Wealth management revenues were $9.3 million, up by $457,000, and end-of-period AUA totaled $6.9 billion, up by 270 million or 4%. Mortgage banking revenues totaled $2.5 million, up by $952,000.

Ron: The first quarter included $2 $1 million associated with the litigation settlement.

Ron: Excluding this noninterest income was up by $1 8 million or 13% from Q4.

Ron: Wealth management revenues were $9 3 million up by 457000.

Ron: And end of period totaled $6 9 billion up by $270 million or 4%.

Ron: Okay.

Ron: Mortgage banking revenues totaled $2 5 million up by 952000.

Ron: 76% of our originations in the quarter were saleable compared to 66% in the fourth quarter.

Ronald Stephen Ohsberg: 76% of our originations in the quarter were saleable, compared to 66% in the fourth quarter. Turning to expenses, these were up by $1.8 million, or 5% from the fourth quarter. Salaries expense increased by $3.3 million, or 18%. Recall that last quarter we reversed $3.4 million in compensation accruals, which lowered fourth quarter expenses. Excluding the salaries expense, other non-interest expenses were down by $1.3 million, or 35%, largely due to a $1 million contribution made to our charitable foundation in the fourth quarter. In the first quarter, the effective tax rate was 20.6%. We estimate our full year 2024 effective tax rate to be 21%.

Ron: Turning to expenses these were up by $1 8 million or 5% from the fourth quarter salaries expense increased by $3 3 million or 18%.

Ron: Call that last quarter, we reversed $3 4 million in compensation accruals, which lowered fourth quarter expenses, excluding the salaries expense actually declined a bit.

Ron: Other noninterest expenses were down by $1 3 million or 35% largely due to a $1 million contribution made to our charitable foundation in the fourth quarter.

Ron: In the first quarter the effective tax rate was 26% we estimate our full year 2024 effective tax rate to be 21%.

Ronald Stephen Ohsberg: Turning to the balance sheet, total loans were up by $31 million, at 1% from December. Total commercial loans increased by $60 million, while residential loans declined by $19 million, and Market Deposits were essentially flat, down $20 million from December 31st. Turning to asset quality, asset quality improved quarter over quarter; non-occurring loans were 54 basis points on total loans compared to 79 basis points at year-end, and past-due loans as a percentage of loans were 18 basis points compared to 20 at year-end.

Ron: Turning to the balance sheet total loans were up by $31 million or 1% from December.

Total commercial loans increased by $60 million, while residential loans declined by $19 million.

In market deposits were essentially flat down $20 million from December 31.

Turning to asset quality asset quality improved quarter over quarter.

Ron: Nonaccruing loans were <unk> 54 basis points on total loans compared to 79 basis points at year end and past due loans as a percentage of loans were 18 basis points compared to 20 at year end, we had zero commercial real estate delinquencies.

Ronald Stephen Ohsberg: We had zero commercial real estate delinquencies. The allowance totaled $41.9 million, or 74% of total loans, and provided NPL coverage of 136%. The first quarter provision for credit losses was a charge of $7,700,000. And we had net charge-offs of $52,000 in the quarter. And at this time, I will turn the call back to Ned. Thanks, Ron.

Ron: The allowance totaled $41 9 million or 74% of total loans and provided NPL coverage of 136%.

Ron: The first quarter provision for credit losses was a charge of 70 $700000.

Ron: And we had net charge offs of $52000 in the quarter and at this time I will turn the call back to Nick.

Nick: Thanks, Ron and we will now take questions.

Nick: Thank you.

Nick: If you would like to ask a question during today's question and answer session. Please press star followed by one on your telephone keypad.

Edward Otis Handy: Thanks, Ron, and we'll now take questions.

Operator: Thank you. If you would like to ask a question during today's question and answer session, please press star followed by one on your telephone keypad. When it is your turn to speak, please ensure that your line is in a muted location. And if you change your mind at any time and would like to remove your request-to-speak, please press star then 2. And as a reminder, it is a star followed by 1 to ask a question. We will pause here for a moment while questions are registered. We will take the first question from Mark Fitzgibbon of Piper Sandler. Your line is now open.

Speaker Change: When is your turn to speak.

Speaker Change: Please ensure your line is on mute locally.

Speaker Change: And if you change your mind any time I would like to remove your question. Please press Star then two.

Speaker Change: And as a reminder.

Speaker Change: Fleet by one to ask a question.

Speaker Change: <unk> four amendment questions, Bob I just did.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: We will take the first question from Mark Fitzgibbon of Piper Sandler Your line is now open.

Mark Thomas Fitzgibbon: Hey guys, good morning. Hey Mark. I wondered if you could share with us whether the $2.1 million litigation settlement that you had was related to the wealth management business, or was that something else?

Mark Thomas Fitzgibbon: Hey, guys good morning.

Mark Thomas Fitzgibbon: Hey, Mark Hey, Mark.

Mark Thomas Fitzgibbon: Im wondering if you could share with US was the $2 $1 million litigation settlement that you had related to the wealth management business or was that something else.

Ronald Stephen Ohsberg: Yes, it was.

Speaker Change: Yes, it was.

Speaker Change: So is that all the litigation surrounding those people, leaving has that been fully resolved with this settlement.

Ronald Stephen Ohsberg: So, has all the litigation surrounding those people leaving been fully resolved with this settlement?

Speaker Change: Yes, that's a final resolution of it.

Ronald Stephen Ohsberg: Yes, that's the final resolution to it.

Speaker Change: Okay.

Mark Thomas Fitzgibbon: And then secondly, Ron, I wondered if you could share with us your thoughts on the outlook for the net interest margin. I think last quarter you had suggested you were assuming 325 basis point cuts and rates. Has that thinking changed as well?

Speaker Change: And then secondly, Ron I wondered if you could share with us your sort of thoughts on the outlook for the net interest margin I think last quarter. You had you had suggested you were assuming $3 25 basis point cut in rates is that has that thinking changed as well.

Speaker Change: Okay.

Ron: Yes, I mean, we're thinking our most recent forecast.

Ronald Stephen Ohsberg: Yeah, I mean, our most recent forecast had two and a little later. I think there's still a lot of uncertainty about what the Fed is going to do. So I can provide you with guidance. We think that the second quarter will be, you know, 180, plus or minus a small range around that.

Two.

Ron: A little later.

Ron: I think theres still a lot of uncertainty about what the fed is going to do so I can provide you.

Ron: We think that the second quarter will be 180.

Ron: Plus or minus a small range around that.

Ron: Okay.

Mark Thomas Fitzgibbon: And then I think in the past quarter, you'd also talked about an expense run rate in that sort of $35 million range, which incorporated the two branches you've opened thus far this year. Any other tweaks to that? Or do you still feel like that's a, you know, 34 and a half, $35 million, run rate range for expenses in the second quarter?

Ron: And then I think in the past quarter, you'd also talked about an expense run rate and that sort of $35 million range, which incorporated the two branches you've opened thus far this year any other tweaks to that or do you still feel like that's a 34 $535 million run rate range for expenses in the second quarter.

Speaker Change: Yes, I think 35 is a good number mark it's a little higher than we did in the first quarter.

Ronald Stephen Ohsberg: Yeah, I think 35 is a good number, Mark. It's a little higher than we did in the first quarter. We will probably have some seasonal mortgage commission activity going through, and we will probably have a higher mortgage banking revenue in the second quarter as well, due to seasonality. Okay.

Speaker Change: We will have some seasonal.

Speaker Change: Mortgage commission activity going through probably have a higher mortgage banking revenue in the second quarter as well.

Speaker Change: Okay.

<unk>.

Speaker Change: Okay, and then just to pivot back to wealth management.

Mark Thomas Fitzgibbon: And just to pivot back to wealth management, it looked like client flows continued to be negative. They were sort of 2x what they were last quarter. I guess I'm curious, have you lost any more teams or producers in that business? And kind of what's the plan to sort of turn those flows, you know, positive again?

Speaker Change: It looked like client flows continued to be negative sort of <unk>. What they were last quarter I guess I'm curious have you lost any more teams or producers in that business.

And kind of what's the plan to to sort of turn those flows positive again.

Speaker Change: Yeah. So now.

Edward Otis Handy: Yeah, so the previous previously-announced attrition is behind us. I would say look, it was just higher than normal. You know, people have life events. You know, for instance, there was one estate payout of $25 million included in the quarter, and those things happen. You know, nothing unusual happened in the quarter.

The previous.

Speaker Change: Previously announced attrition is behind us.

Speaker Change: I would say look it wishes to higher than normal people have life events.

For instance, there was one state payout of $25 million included in the quarter and those things happen.

Speaker Change: Nothing nothing unusual happened in the quarter.

Mark Thomas Fitzgibbon: But I guess the point I'm getting at is client flows have been negative for as far back in time as the eye can see. Is there a point at which that will stop? Is there some kind of plan to bring in new people to generate new business flows?

Speaker Change: But I guess the point I'm getting at is client flows have been negative for as far back in time as the eye can see it seems.

Is there a point at which.

Speaker Change: That will stop is there some kind of plan to bring in new people to generate new business flows or.

Speaker Change: Yes, well, that's a net number mark so so we do have new business all the time.

Edward Otis Handy: Yeah, well, that's a net number, Mark. So we do have new business all the time. I would also say that we have fairly comprehensive granularity in our disclosures, and we've kind of looked at some other competitors, and really, very few institutions provide the level that we do. So I don't think that we're unusual in that regard to see client outflows, but we certainly are disclosing them when they occur.

Speaker Change: I would also say that we have fairly comprehensive.

Speaker Change: Granularity in our disclosures and we've kind of looked at some other competitors and really very few.

Speaker Change: Institutions provides a level that we do I don't think that were unusual in that regard to see to see client outflows.

Speaker Change: Well, we certainly are disclosing them when they occur.

Edward Otis Handy: And Mark, this is Ned. I would tell you we're always looking at staffing levels and looking at incentive plans and whether we've got the right mix on both sides. And so, you know, we're always interviewing new people. We've got some, you know, the private clients group has an opening in it right now that we're recruiting for.

Speaker Change: And Mark this is Ned I would tell you we are always looking at the staffing levels and looking at incentive plans and whether we've got the right mix on both sides.

Edward Otis Handy: So we're always.

Edward Otis Handy: Interviewing new people we've got some.

Edward Otis Handy: Clients group.

Edward Otis Handy: Has an opening in it right now that we're recruiting for.

Speaker Change: Thank you.

Speaker Change: So there's there's.

Mark Thomas Fitzgibbon: I think, you know, so there's always a look at the sales approach. It's a tough business to grow organically. We'd much rather be in it at scale as we are than not and be there to take advantage of market help when it's there, but we understand that we've got to always focus on whether we've got the right mix in place to grow it organically.

Speaker Change: Always a look at the sales approach and it's.

Speaker Change: Tough business to grow organically.

Speaker Change: With much rather be an at scale as we are then not be there to take advantage of a market market help when it's when it's there, but we understand that.

Speaker Change: We've got we've got to always focus on whether we've got the right mix in place to to grow it organically.

Speaker Change: Organically.

Mark Thomas Fitzgibbon: Okay. And then last question I have, and I sort of asked a variation on it last quarter, if you look at your capital ratios, they're pretty low relative to peers. And if you look at sort of the core dividend payout ratio this quarter, excluding the litigation settlement, your payout ratio is about 104%. I guess I'm curious, why not cut the dividend in order to preserve capital, given that we are in kind of unusual times where there could be things that pop up and become challenging? Why continue to pay out at this elevated level and really strain your capital ratios?

Okay, and then last question I have and I sort of asked a variation on it last quarter. If you look at your capital ratios there they are pretty low relative to peers.

Speaker Change: And if you look at sort of the core dividend payout ratio this quarter, excluding litigation settlement. Your payout ratio was about 104% I guess I'm curious why not cut the dividend in order to preserve capital given that we are in kind of.

Speaker Change: Unusual times, where there could be things that pop up and become challenging.

Speaker Change: Why continue to pay out at this elevated level and really strained your capital ratios.

Speaker Change: Okay.

Ronald Stephen Ohsberg: Yeah, so I would say that we consider the dividend to be a key component of our shareholder return. We don't believe that the current level of revenue is permanent. We do believe that revenues will recover at some point, but we probably need some help with interest rates, and no one knows what the timing of that would be. If we were to cut the dividend, that would really have a very modest impact on capital accretion, in my view. We do have the earnings and the capital to sustain the dividend, and our intention is to maintain the dividend.

Speaker Change: Yes, so I would say that we consider the dividend to be a key component of our shareholder return.

Speaker Change: We don't believe that the current level of revenue is permanent we do believe that revenues will recover at some point, we probably need some help with interest rates and no one knows what the timing of that would be if.

Speaker Change: If we were to cut the dividend.

Speaker Change: That would <unk>.

Speaker Change: We really have a very modest.

Speaker Change: Impact on capital accretion in my view.

We do have the earnings and the capital to sustain the dividend and our intention is to maintain the dividend.

Speaker Change: But I think in your prepared remarks, you talked about opportunistically growing the balance sheet I guess I'm curious then how much lower would you be willing to take the capital ratios.

Mark Thomas Fitzgibbon: But I think in your prepared remarks, you talked about opportunistically growing the balance sheet. I guess I'm curious, then, how much lower would you be willing to take the capital ratios?

Speaker Change: Yes, so we're focused on the total risk based capital ratio right now and that improved by four basis points in the quarter. So that's where.

Ronald Stephen Ohsberg: Yeah, so we're focused on the total risk-based capital ratio right now, and that improved by four basis points in the quarter. So that's, you know, we've stabilized that ratio, and we expect to see some modest improvement in that ratio going forward. And that gives us, that gives us adequate capital to sustain the dividend. But Mark, my comment about opportunistic growth was a little bit.

Speaker Change: We've stabilized that ratio and we expect to see some modest improvement in that ratio going forward and that gives us.

Speaker Change: That gives us adequate capital to sustain the dividend.

But mark my comment about opportunistic growth was a little further down the line.

Ronald Stephen Ohsberg: But, Mark, my comment about opportunistic growth was a little further down the line, more of a longer-term view. We've definitely slowed down our WA growth and, in fact, are looking to reduce it to help with the capital picture. Earnings, of course, is the best way to get there, and so we're doing everything we can on the expense side to help on the earnings front, and we feel like we're controlling what we can in order to build capital ratios back up, but that's certainly our intent prior to opportunistic growth.

Speaker Change: More of a longer term view, we've definitely slowed down our <unk> growth and in fact are looking to reduce it to help with the capital picture earnings of course is the best way to get there and so we're doing everything we can on the expense side.

Speaker Change: On the earnings front, and we feel like we're controlling what we can.

Speaker Change: In order to build capital ratios back up but.

That's certainly our intent.

Speaker Change: Prior to opportunistic growth.

Speaker Change: Thank you.

Speaker Change: Yeah.

Operator: We now have Damon DelMonte of KBW.

Speaker Change: Okay. Thanks Mark.

Speaker Change: We now have Damon delmonte of Kb Dong Li.

Damon Paul DelMonte: Hey, good morning, guys. I hope you're both doing well today.

Damon Paul DelMonte: Hey, good morning, guys hope, you're both doing well today.

Damon Paul DelMonte: Um, just wanted to see if we could get a little bit more color, Ned, on your comment about the deposit strategy that you guys are going to be rolling out. Is that a second quarter event? Is that a second half event? Um, you know, what are the expectations and kind of what are the means that you're going to use to do that?

Damon Paul DelMonte: Just wanted to see if we can get a little bit more color.

Damon Paul DelMonte: Ed on your comment about the deposit strategy that you guys are going to be rolling out is that.

Damon Paul DelMonte: Second quarter event does that a second half event.

Damon Paul DelMonte: What are the expectations and kind of what are the things that youre going to use to do that.

Edward Otis Handy: So thanks, Damon. Yeah, so second quarter, we'll see the actual turning of the switch on and some technology that we've invested in, an omnichannel automated account opening technology that we're really excited to start. We'll start on the consumer side and then roll out the business side, probably in either late Q2 or Q3. We've also invested in a switch platform to help customers switch to us more easily. That'll be rolled out this quarter.

Damon Paul DelMonte: So.

Ed: Thanks Damon.

Ed: So second quarter, we will see.

Speaker Change: Actual turning to turn the switch on and some technology that we've invested in.

Speaker Change: But omnichannel automated account opening.

Speaker Change: Technology that we're really excited to start we will start on the consumer side, and then rollout the business side and probably in either late Q2 or Q3.

Speaker Change: We are we've also invested in a switch.

Speaker Change:

Speaker Change: <unk> platform to help customers switch to us more easily that'll be rolled out this quarter.

Edward Otis Handy: And we've got one other piece of technology, which is called Refer-a-Friend, which is another sort of deposit referral mechanism that we're rolling out. So those are the investments. But on sort of the sales culture side, we've got everybody in the company focused on deposit growth. We think it's been our number one priority for as long as I've been here. It continues to be our number one priority to get our funding mixed better.

Speaker Change: And we've got one other piece of technology, which is called refer a friend, which is another sort of deposit referral mechanism that we're that we're rolling out.

Speaker Change: So those are those are the investments.

Speaker Change: But on the <unk>.

Speaker Change: Sort of the sales culture side, we've got everybody in the company focused on deposit growth.

Speaker Change: We think it is.

Speaker Change: Our number one priority for for as long as I've been here. It continues to be our number one priority to get our funding mix better.

Edward Otis Handy: And so everyone, including all the commercial lenders, is focused more on deposit gathering than they are on lending. Our cash management team is focused even more on commercial cash management, but also our municipal group within the cash management team is focused on growing our municipal deposits.

Speaker Change: And so everyone, including all the commercial lenders are focused more on deposit gathering and lending.

Speaker Change: Cash management team is.

Speaker Change: Focused even more on commercial cash management, but also our municipal group within the cash management team are focused on growing our municipal deposits.

Edward Otis Handy: So we're, you know, obviously we want to grow the deposit base, and Ron, I think from an expectation standpoint, we're basically flat so far this year. I think one or two percent growth would be a great target for the year, but we've got much bigger hopes than that in the long run. We really need to turn the funding of the company more towards deposits away from borrowed funds. Yeah, so just to level the expectations, we don't expect to see dramatic changes in our deposit base in the short term. Rhode Island is a pretty slow growing state in that regard.

Speaker Change: So we're.

Speaker Change: Obviously, we want to we want to grow the deposit base.

Speaker Change: Ron I think from an expectation standpoint.

Speaker Change: We are basically flat so far this year, I think one or 2% growth would be a great target for the for the year, but we are.

Speaker Change: We've got much bigger hopes in that in the long run we really need to turn the funding of the company.

Speaker Change: More and more towards deposits away from borrowed funds.

Speaker Change: So yes, so just to level set expectations, we don't expect to see dramatic changes in our deposit base in the short term, Rhode Island is a pretty slow growth state in that regard.

Damon Paul DelMonte: But we are, I think, causing some cultural changes and some technological changes. It's going to come through, I think, taking market share from others. And that's not easy to do. And everyone is trying to do the same thing right now. And so we're going to have to be better at it than they are. So we'll see what happens in the coming quarter.

Speaker Change: But we are I think setting some cultural changes and some technology changes, it's going to come through I think taking market share from others.

Speaker Change: Z to do and everyone is trying to do the same thing right now and so we're going to have to be better at it than they are so we'll see what happens in the coming quarters.

Speaker Change: Got you, Okay I appreciate that color.

Damon Paul DelMonte: Got you. Okay, now, appreciate that color.

Damon Paul DelMonte: And then with regard to loan growth and kind of outlook for that, you know, I think you had 3% link quarter annualized growth here in the first quarter. I think the expectation was that loans would kind of be flat for the year, 3% on the commercial side, 3% runoff on the consumer side. Has that shifted at all because of the results here in the first quarter, or do you still kind of expect balances to ultimately be flat throughout the year? Yeah, I would say.

Speaker Change: And then with regards to the loan growth and kind of outlook for that.

Speaker Change: 3% linked quarter annualized growth here in the first quarter.

Speaker Change: I think the expectation was that loans would kind of be flat for the year of 3% on the commercial side, 3% run off on the consumer side has that shifted at all because of the results here in the <unk>.

Speaker Change: First quarter or do you still kind of expect balances to ultimately be flat throughout the year.

Speaker Change: Yes, so I would say.

Ronald Stephen Ohsberg: Yeah, so I would say in the January call, we told you that we had a committed pipeline of construction advances, and that made up most of the growth. We did do a couple of kind of one-off things that we still had in our pipeline. Our commercial pipeline is virtually zero at this point in time. You know, maybe a one-off here or there, so I think it's just burning out. I think we had $240 million of construction advances kind of budgeted over the course of the year, and that'll be offset by amortization.

Speaker Change: In the January call. We told you that we had a committed pipeline of construction advances and that made up most of the growth.

Speaker Change: We did do a couple of kind of one off things that we still had in our pipeline our commercial pipeline is virtually.

Speaker Change: Bert virtually zero at this point in time, maybe a one off here or there. So I think it's just burning off I think we had $240 million of construction advances kind of budgeted over the course of the year.

Speaker Change: And that'll be offset by amortization.

Speaker Change: Okay.

Speaker Change: Okay got it and as you manage the growth I mean is there an approach to that.

Damon Paul DelMonte: Got it. And as you manage the growth, I mean, is there an approach to not, you know, turn away all the customers that could be seeking credit? I mean, are you... Is it like the net-net kind of gonna be zero because you're maybe moving away from some relationships and adding new ones that are strong or adding two current ones that are strong? Or what's the approach to kind of balance? Spigot and Hubset. Right, that's...

Speaker Change: The customers that could be seeking credit I mean are you.

Speaker Change: Is it like net net kind of going to zero, because you might maybe moving away from some relationships and adding new ones that are are strong or adding to current ones that are that are strong or what's the approach to kind of balance.

Speaker Change: Spigot hubs that people.

Ronald Stephen Ohsberg: Right, that's that's a great question. And yes, so we are all of all of what you mentioned, we're, we're going to sell some participation interest in existing loans. Yeah, we definitely want to keep the customer franchise in place, but we're also allowing some non-core type loans that mature. We're allowing them to pay off rather than refinance them. So I think it's a combination of all the above, with the customer at the center and making sure that we're there for customers that need us most.

Speaker Change: Alright.

Speaker Change: Thats a great question and yes. So we're all of all of what you mentioned, we're going to sell some participation interest in existing loans.

Speaker Change: Okay.

Speaker Change: Yes, we definitely want to keep the customer franchise in place, but we're also allowing.

Speaker Change: Non non core type loans that mature, we're allowing them to pay off.

Speaker Change: Rather than refi them.

Speaker Change: So so I think it's a combination of all the above with the customer at the center and making sure that we are there for customers that need us most.

Speaker Change: And again I think going forward, we will probably be.

Ronald Stephen Ohsberg: And again, I think going forward, we will probably be more of a lead participation lender than we have been in the past, and we certainly won't be buying participations that don't come with deposits and the ancillary business opportunities. So I think it's a little bit of everything, Damon, but yeah, definitely sensitive to customer relationships.

Speaker Change: More of a lead.

Speaker Change: Participation sold.

Speaker Change: Lender than we have been in the past.

Speaker Change: And we certainly won't be won't be buying participations that don't come with deposits in.

Speaker Change: The ancillary business opportunities. So I think it's it's.

Speaker Change: It's a little bit of everything Damon, but yes definitely sensitive to customer relationships.

Speaker Change: Got it Okay and then just lastly on the on the provision outlook.

Damon Paul DelMonte: Got it, okay. And then just lastly on the provision outlook, you know, good improvement there on NPAs during the quarter. Kind of given the outlook for loan growth, do you feel comfortable at the 74 basis point reserve level, absent any types of credit deterioration?

Speaker Change: Yes.

Speaker Change: Good good improvement there in NPA during the quarter.

Speaker Change: Kind of given the outlook for loan growth do you feel comfortable at the 74 basis points.

Speaker Change: <unk> level absent any any types of credit deterioration.

Ronald Stephen Ohsberg: Yeah, yes, yes. And just in terms of guidance, I mean, I think we told you a million a quarter on the January call. I would just stick with that. We came in a little better than that this quarter, probably a good assumption. Okay, that's all that I had. Thanks a lot.

Speaker Change: Yes, yes, yes, and just in terms of guidance I mean, I think we told you $1 million a quarter at the January call I would just stick with that.

Speaker Change: We came in a little better than that this quarter.

It's probably a good assumption.

Speaker Change: <unk>.

Speaker Change: Got it okay. That's all I had thanks a lot appreciate it.

Damon Paul DelMonte: Got it. Okay, that's all that I had. Thanks a lot. I appreciate it.

Dan: Thanks, Dan here.

Speaker Change: Thank you.

Operator: As a reminder, to ask a question, please press star followed by 1 on your telephone keypad now, and we will move on to the next question, which is from Laurie Hunsicker of CBC.

Speaker Change: Is there a line that you asked a question. Please press star followed by one on your telephone keypad now.

Speaker Change: On legal day, one to the next question, which is from Nora.

Nora: Thank you Chuck with seaport.

Laura Katherine Havener Hunsicker: Yeah, hi, thanks. Good morning. Wondered if we could go back to Mark and see if we have... Ron, do you have the spot margin for the month?

Nora: Yeah, Hi, Thanks, good morning.

Nora: Just wondering if we can and do you have rhonda.

Nora: Ron do you have the spot margin for the month.

Ronald Stephen Ohsberg: Yeah, yeah, it was 180.

Nora: Month of March.

Rhonda: Yes, yes.

Rhonda: Yes, it was 180.

Laura Katherine Havener Hunsicker: It was 180. Okay. And in your comments, you said 2Q margin, 180 plus or minus. How should we think about a little bit further out, given this higher for longer? What does the back half of 24 look like?

Rhonda: It was 180 okay.

Yes.

Rhonda: And in your comments, you said QQ margin 180, plus or minus how should we think about a little a little bit further out.

Rhonda: Given this higher for longer what does what does the back half of 'twenty looks like.

Ronald Stephen Ohsberg: Yeah, yeah. So, I mean, we're still experiencing the same issues that other banks are with regard to the makeshifting between deposit categories, and I think the longer the Fed delays, the more that makes sure it's kind of allowed to happen. You know, we do think it would be helpful to see a cut and to orient customer expectations around what their rate is, and rates will look like. We've kept things on the wholesale side pretty short, and CD maturities are short.

Yes, yes, so I mean.

Rhonda: We're still experiencing the same issues that other banks are with regard to mix shift.

Rhonda: Between deposit categories, and I think the longer the fed.

Rhonda: Delays.

Rhonda: The more of that mix shift has kind of allowed to happen.

Rhonda: We do think it would be helpful to see a cut.

Rhonda: Orient customer expectations around what their rate.

Rhonda: Rates will look like we've kept things.

Rhonda: On the wholesale side pretty short.

Rhonda: CD maturities are pretty short.

Ronald Stephen Ohsberg: So when the Fed starts to cut, we will be able to, you know, react in a reasonable period of time to try to reduce our funding costs. Yeah, I mean, I think the longer it takes, it continues to put pressure on the margin, for sure.

Rhonda: When the fed starts to cut we will be able to react in a reasonable period of time to try to to reduce our funding costs.

Speaker Change: Yes, I mean, I think the longer it takes.

Speaker Change: It continues to put pressure on the margin for sure.

Laura Katherine Havener Hunsicker: Gotcha. Okay, that makes sense. And can you remind us you've got another branch, I think, that's coming online in a few quarters? What is the latest and where?

Speaker Change: Got you, Okay that makes sense.

Speaker Change: And can you remind us you've got you've got another branch I think thats coming on line in a few quarters, but what is the latest and where is that.

Ronald Stephen Ohsberg: Yeah, the branch in Oneyville, which is a section of Providence, is due to come online in the second quarter, but probably towards the end of it. I think we're in our third quarter, aren't we? July? Sorry, beginning of the third quarter.

Speaker Change: Yes, the branch and only though which is a section of Providence is due to come online.

In the second quarter, but probably towards the end of it.

Speaker Change: I think third quarter beginning July <unk>.

Ronald Stephen Ohsberg: So it's been quite a process of getting all the approvals we need, despite the fact that it was a bank branch to start with. But it's a fairly sizable renovation, and we're really excited to get that branch open. It's right in the heart of downtown Providence, serving a great part of the population. So, and other than that, we don't have any other branches in sight right now. Yeah, the Smithfield branch, which you've heard us talk about, opened on the first.

Speaker Change: Sorry, beginning of third quarter. So it's been it's been quite a process of <unk>.

Speaker Change: Getting all the approvals we need despite the fact that it was a bank branch to start with.

Speaker Change: But it's a fairly sizeable renovation.

Speaker Change: We're really excited to get that branch opened its right in the heart of downtown Providence.

Speaker Change: Serve serve a great part of the population so.

Speaker Change: Other than that we don't have any other branches.

Speaker Change: Insight right at the moment.

Speaker Change: Yes, the Smithfield breath with effortless.

Speaker Change: And in the first quarter.

Laura Katherine Havener Hunsicker: Okay, gotcha. And then your $35 million quarterly expense run rate, does that have the new Olneyville branch fully baked in, or how should we be thinking about that?

Speaker Change: Okay got you and then your 35 million quarterly expense run rate does that have.

Speaker Change: The new all Knievel branch only bank, Dan or how should we be thinking about that.

Ronald Stephen Ohsberg: Yeah, that's in there. That's in there. OK, perfect. And then this last one.

Speaker Change: Yes, that's in there.

Laura Katherine Havener Hunsicker: That's in there. Okay, perfect. And then, just last, if we could get an, office. Refresh. I mean, you know, your credit is pristine, I guess, outside of office, and two-thirds of your non-performers. Can you just update us? you know, specifically that $18.7 million. Any sort of new news there, I guess, remind us. And then also... That's Class D. And then also the lab space, the 19 million that's sitting in Classified. Just any color you can provide us would be super helpful.

Speaker Change: Okay, Perfect and then just lastly.

Speaker Change: We could get.

Speaker Change: In office.

Requests I mean, your credit is pristine I guess outside of office offices.

Speaker Change: Farmers can you just update us.

Speaker Change: Specifically that that.

Speaker Change: Of that $18 7 million any sort of new news there.

Speaker Change: Remind us and then also.

Speaker Change: Yes.

Speaker Change: And then also the lab space for $19 million Thats sitting in classified just any color you can provide us would be super helpful.

Speaker Change: Thanks.

Speaker Change: Okay.

Speaker Change: Bill you want to take that one.

Ronald Stephen Ohsberg: So the lab space is a large property that we're working with a sponsor now who's going to put in a big chunk of cash to build out some spec suites. So we are comfortable with where it is, we're comfortable with the market. It's a large participation with both a strong sponsor and a strong participation partner.

William K. Wray: Sure sure so the lab space is.

William K. Wray: A large property that we are working with the sponsor now was going to put in a big chunk of cash.

William K. Wray: To build out some spec suites. So we are comfortable with where it is.

Speaker Change: We're comfortable with our market.

William K. Wray: It's a large participation with both a strong sponsor and a strong participation partners. So I think it's more of them repositioning this and the fact that the sponsor is ready to put 20 million bucks into this.

Ronald Stephen Ohsberg: So I think it's more them repositioning this and the fact that the sponsor's ready to put, you know, 20 million bucks into this to goose leasing is a good sign. So, we feel, again, comfortable about this, and there might be an opportunity for an upgrade because there's been a recent appraisal that looks strong, but it stands where it stands for now, but it looks like the vectors are moving in the right direction on that. On the nonaccrual side for Class B, you asked about 18.7.

William K. Wray: To boost leasing is a good sign so we feel again comfortable about this.

William K. Wray: <unk>.

William K. Wray: There might be an opportunity for an upgrade because theres been a recent appraisal that looks strong.

William K. Wray: But.

William K. Wray: It stands which stands for now but it looks like does that moving in the right direction on that.

William K. Wray: On the nonaccrual side.

William K. Wray: For class B, you asked about the $18 seven.

Ronald Stephen Ohsberg: We have a deal, it looks like, that will probably cut that about in half, but that's, I can't, it's never closed until it's closed. So I don't want to provide any timing or anything more specific on that, but we feel comfortable that again the vectors are moving in the right direction. We also recently, and we do this every quarter, went through all of our offices, maturities for the next eight quarters, to see if there's anything we can get ahead of, anything we should be concerned about that should result in accounting moves.

William K. Wray: We have a <unk>.

William K. Wray: It looks like that will probably cut that about in half, but I can't it's never closed until its closed.

William K. Wray: So I don't want to provide any timing or anything more specific on that but we feel comfortable that again the vectors are moving in the right direction.

William K. Wray: We also recently and we do this.

William K. Wray: The quarter has gone through all of our office.

William K. Wray: Maturities for the next eight quarters.

William K. Wray: To see if there's anything we can get ahead of anything we should be concerned about that.

Ronald Stephen Ohsberg: We just went through that process. We feel very comfortable about a half to two-thirds of it. The remaining part of it are the ones that have already started to be addressed on this chart here. So we are watching Office like a hawk, and we think that our accounting for it has been conservative, and we see, you know, again, improvements coming in the next couple quarters. Great.

William K. Wray: Result in accounting moves just went through that process in there as well.

William K. Wray: We feel.

William K. Wray: Very comfortable all about a half to two thirds of it the remaining part of it are the ones that have already started to be addressed on this chart. Here. So we are watching office like a hawk and we think that are accounting for it has been conservative and we see.

William K. Wray: Again improvements.

William K. Wray: Coming in the next couple of quarters.

Laura Katherine Havener Hunsicker: Great. Thanks. That's helpful. And thanks for all the details in the question. I'll leave you there.

Speaker Change: Great. Thanks, that's helpful and thanks for all the details there.

Speaker Change: Sure.

Speaker Change: Yes.

Operator: If you would like to ask any further questions, please press star followed by 1 on your telephone keypad now. We have had no further questions registered, so I'd like to hand this over to the management team. Well, thank you all for joining us.

Speaker Change: Thank you.

Speaker Change: You'd like to ask any further questions. Please press star followed by one on your telephone keypad now.

Speaker Change: We have had no further questions registered so I would like to turn it back to the management team.

Speaker Change: Yeah.

Edward Otis Handy: Well, thank you all for joining us today. I hope we've presented a clear picture of the current state and recent performance and our intentions going forward, and we always appreciate your time and your interest and look forward to speaking with you again soon.

Speaker Change: Well. Thank you all for joining us today I hope, we presented a clear picture of the current state and recent performance and our intentions going forward and we always appreciate your time and your interest and look forward to speaking with you again soon.

Speaker Change: Take care everybody.

Operator: Thank you all for joining us on today's conference call with Washington Trust Bancorp Inc. The call has now concluded, and you may now disconnect your lines.

Speaker Change: Thank you for joining.

Speaker Change: Today's conference call with Washington Trust Bancorp, Inc.

Speaker Change: Today's call has now concluded and you may now disconnect your lines.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.