Q4 2024 Washington Trust Bancorp Inc Earnings Call

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Speaker Change: Hello everyone and thank you for your patience. Today's call will begin shortly.

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Mark Fitzgibbon, Damon DelMonte

Lydia: Good morning and welcome to Washington Trust Bancorp Inc.'s conference call. My name is Lydia and I'll be your operator today.

Lydia: 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 one to get in the queue. As a reminder, today's call is being recorded.

Speaker Change: I'd now like to turn the call over to Sharon Walsh, Senior Vice President Marketing Strategy and Planning. Please go ahead.

Sharon Walsh: Thank you, Lydia. Good morning and welcome to Washington Trust Bancorp, Inc.'s conference call for the fourth quarter of 2024. Joining us this morning are members of the Washington Trust Executive Team, Ned Handy, Chairman and Chief Executive Officer,

Sharon Walsh: Mary Nunes, 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.

Sharon Walsh: Please note that today's presentation may contain forward-looking statements and our actual results could differ materially from what is discussed on today's call

Sharon Walsh: Our complete Safe Harbor Statement is contained in our earnings release, which was issued yesterday, as well as other documents that are filed with the SEC.

Sharon Walsh: 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.

Sharon Walsh: I'm now pleased to introduce today's host, Washington Trust Chairman and Chief Executive Officer, Ned Handy. Ned? Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

Ned Handy: Thank you, Sharon. Good morning and thank you for joining our fourth quarter conference call. We respect and appreciate your time and interest in Washington Trust.

Sharon Walsh: I'll briefly comment on the quarter and then Ron will provide more detail on the financial results. After our prepared remarks, Mary and Bill will join us for the Q&A session.

Sharon Walsh: The security sale and reinvestment occurred in the fourth quarter, and the loan sale pricing was locked in the fourth quarter, but the actual sale of the loans occurred last week.

Sharon Walsh: The reduction of maturing wholesale funding will occur over the next few months and Ron will provide some detail beyond that.

Sharon Walsh: Though this initiative resulted in a loss recognized in the fourth quarter, it will favorably impact future revenues and provide additional capacity for growth and investment.

Sharon Walsh: These actions, combined with positive organic momentum preceding them, have further strengthened our financial foundation, allowing us to focus on providing enhanced value for shareholders as well as the customers and communities we serve.

Sharon Walsh: I'd like to take this opportunity to thank our shareholders who showed tremendous support for this strategy.

Again, Ron will provide details on the impact.

Speaker Change: I'm also very pleased to mention that in the fourth quarter we hired a new head of retail banking.

Sharon Walsh: Michelle Kyle, a Rhode Island native, joined us from Digital Federal Credit Union where she led retail branch services, business development, and customer experience. We very much look forward to Michelle's impact on our deposit growth strategies.

Speaker Change: I'll now turn the call over to Ron for some more detail on the quarter. We'll then be glad to address any questions.

Ron?

Ron Ohsberg: Thanks, Ned, and good morning, everyone. As Ned said, we reported a net loss of $60.8 million, or $3.46 per share, in the fourth quarter. Excluding the balance sheet repositioning asset losses, adjusted net income amounted to $10.4 million, or $0.59 per share.

Ron Ohsberg: Net interest income was $32.9 million, up by 674,002%. The margin was $195, up by 10 basis points. This improvement reflected the net effect of lower rates and the partial impact of the balance sheet repositioning on the margin.

Ron Ohsberg: Adjusted non-interest income amounted to $16 million and was modestly down by $229,001 percent.

Ron Ohsberg: Spot AUA balances totaled $7.1 billion at the end of the year. Mortgage banking revenues totaled $2.8 million down by 18,000 or 1%.

Thank you.

Ron Ohsberg: Also, advertising and promotion expense decreased by $297,000 in the fourth quarter due to timing.

Ron Ohsberg: Adjusted income tax expense amounted to $3.2 million, and the adjusted effective tax rate was $23.7 million for the fourth quarter. We expect the full year 2025 effective tax rate to be about $22.5.

Ron Ohsberg: And market deposits were up 26 million or 1%, and brokered deposits were down 82 million, and FHLB borrowings were down by 175 million.

The fourth quarter provision for credit losses was $1 million.

Nick: We had net charge-offs of 1.9 million in the fourth quarter and 2 million for the full year of 2020-2024. This time I'll turn the call back to Nick.

Thanks, Ron. And now, Lydia, we can take questions.

Speaker Change: We have a question from Laurie Hunsicker with Seaport Research Partners. Your line is open, please go ahead.

Laurie Hunsicker: Thanks. Good morning, Ned and Mary and Ron and Bill and Karen. So hoping, hoping, Ron, that you can start with Marjan and just really help us think about all of the moving parts, especially because, you know, some of this obviously isn't even reflected now until the end of January. So maybe

Laurie Hunsicker: If you could help us quantify it in terms of basis points, the impact on different items, if you have a December spot margin, and then also forward looking the impact in terms of the pay down of wholesale funding balances and how you're thinking about that.

Laurie Hunsicker: was supposed to be a 12 basis point pickup starting at the beginning of May. Just wanted to check on that, too. So anything you can help us with in margin would be great.

Speaker Change: Yeah, so Lori, just on that swap piece, that's May of 2026.

For more information, visit www.FEMA.gov

And is that May 1st?

Yeah.

Okay, and that's still 12 basis points.

Yeah, yeah, what we published hasn't changed.

For more information visit www.FEMA.gov

Speaker Change: So, yeah, so the balancing repositioning will be very impactful to 2025. We're projecting a NIM of between 230 and 235 for the first quarter. That will increase over the course of the year to about 245 to 250 in the fourth quarter.

Speaker Change: Over that span, we expect our average earning assets to be in the 6.3 to 6.4 billion dollar range after the settlement of the loans which we sold on Friday, so that'll bring our earning asset balances down.

The spot margin for December was 207.

Speaker Change: Okay, and then just how are you thinking about deposits and CDs and repricing there?

Yeah, so.

So the feds cut four times.

Speaker Change: and we will continue to see, included, this is included in the numbers I just gave you, but

Speaker Change: that will reprice on that. And also our regular retail CDs will be repricing down. I know you've asked about brokered CDs in the past, we will use those when it makes sense to.

Speaker Change: Right now, broker CDs are somewhat more expensive than FHLB. And when that reverses, then we'll, you know, rely a little more heavily on that. But the trend on wholesale funding is to be paying it down anyway.

Speaker Change: Okay, okay. And then on capital, I just want to clarify the $2.199 million share issuance in December, does that include this too?

Say that again, Lauren? The numbers.

Lauren: I'm sorry, Wray. Yes, the additional, I'm sorry, it included the G-ups size. Yes.

Yeah, we're not. It's an important part of this training.

Go ahead, Ron.

Speaker Change: Right. Much better. Okay. Just wanted to hear it from you. Okay. Credit. Can you can you just help us think about a couple of things, I guess, with respect to office?

Speaker Change: The 10 and a half million resolution. That's awesome. You stated that was coming. It came. How much in charge off was that this quarter and any color you can give us there and then

Speaker Change: I guess more broadly, the $3.3 million that's new to non-accruals, is that a Class B office? I'm just looking at that line item. Love your chart, but just wanted a little color on those two things.

Speaker Change: Bill, do you want to take it? This is Bill. Yeah, I can jump in. The charge-off was about, the non-accrual resolution was about half of the total.

And so.

Speaker Change: probably, I would guess late this quarter, but more likely next quarter. So again, with all of these, we're paying a lot of attention. We're looking for expeditious resolution. So we're hoping to continue to, you know, keep these numbers at these low levels.

Speaker Change: Okay, great. And the $3.3 million, that was in office, is that correct?

Yes, that's the one that's under agreement.

Speaker Change: That's under agreement. Okay. Okay, great. And then two more office questions. The what is your overall office reserve now and then also do you have a. Okay.

Speaker Change: Any kind of a refresh on the leasing that twenty and a half million dollar lab Which had gone sort of from zero to I had in my notes 52% as of last quarter Do you have a refresh on that?

on that number.

Thanks.

Speaker Change: Sure, the first one, we don't carry a specific reserve against Office. We don't manage it as a segment because it doesn't work under CECL. We don't have an update to drive it. But our CRE segment, which includes Office, I think has

Speaker Change: I'm just guessing here about 125 basis points of reserve. And then we use the way we manage office within that is we use call factors to reflect the fact that

Speaker Change: And then your other question was on the large lab space, which is now 50, 50, more than 50% occupied. Leasing activity has been slow this quarter. They're starting to see it pick up already for 2025, though.

So we feel there, especially with the significant investment. Okay.

Thank you. Thank you.

Great. Thank you.

For more information visit www.FEMA.gov

Speaker Change: We have a question from Damon DelMonte with KPW. Please go ahead, your line is open.

Damon Delmonte: Hey, good morning, everyone. Hope you're all doing well. Sorry, I thought I had queued in wondering why I wasn't being wondering why I wasn't being called on but apparently I didn't queue in.

Speaker Change: In any event, thanks for all the color on the outlook for the margin and the expected impact from the restructuring. That was very helpful.

Speaker Change: Just kind of wondering what your thoughts are, you know, now that that's behind you as far as like loan growth and opportunities. Now that you've kind of, you know,

Speaker Change: freed up some capacity on the balance sheet and some you know restraint on the margin. Do you feel like loan growth kind of going forward could could kind of go back to what we've seen in years past or you think it's still more of a you know kind of a conservative approach for a few more quarters?

Laura Hunsicker: Unknown Attendee, Laura Hunsicker, Damon DelMonte, Unknown Executive, Edward Handy, Elizabeth Eckel, Ronald Ohsberg

Laura Hunsicker: Low, lowish, you know, 3%-ish loan growth over the period on the commercial side. We'd like to lean that towards C&I. The pipeline right now is leaned towards C&I.

Laura Hunsicker: We, you know, we've got the pre-concentration limit that we're aware of. We're not, there's no issue there, but it's over 350.

Laura Hunsicker: So, you know, we're calibrating the growth there, wanting to make loans, wanting to, again, focus on C&I because it tends to bring more deposits with it, a priority.

Laura Hunsicker: is on the funding side of things and making sure we fund loan growth appropriately. It's an interesting interest rate environment to figure out. We're seeing more fixed rate requests.

Laura Hunsicker: As people are wondering about, you know, the longer term picture of rates and

Laura Hunsicker: Current site line, but the current site line is kind of three percent on the commercial side.

and then tilting the

Laura Hunsicker: The Resi operation towards sales, so we're still thinking kind of 75% of the volume will be sold so that that's that side of the port of the balance she won't grow out.

Laura Hunsicker: and Ron, I think we're actually should, we're thinking that we'd have mild reduction in the portfolio over the next couple of quarters, correct?

Got it.

Hope that helps. It does, it does.

Yeah, okay perfect and then with regards to expenses

Laurie Hunsicker: Ron I mean how are you kind of thinking about it from like the year-over-year perspective of growth if you're you know if you were at 137 million for 24 I mean is it reasonable for kind of two to four percent type of growth over the next year

Ron Ohsberg: Mortgage largely dependent on market conditions and what origination volume could be. But we are projecting call it a five to 10% revenue growth on the mortgage line. We do need to reset expectations around salaries and benefits run rate.

Speaker Change: So in addition to annual merit raises, which you kind of just referred to, we are also restoring our incentive comp to normal after two years of substantially reduced levels. And we're also making some people investments that we've been holding off on. You know, we've reduced our headcount by about

Speaker Change: So all in, you know, we're looking at an increase to our run rate on salaries and benefits and projecting, you know, call it $23.5 million per quarter.

Speaker Change: All of our other expenses are estimated about $13.5 per quarter. So, you know, increased NIM, increased fee revenue, but we are also seeing an expense increase.

Got it, okay, so.

Speaker Change: Add those two, it's like, yeah, 37. Okay. Alright. So that makes sense. So, I mean, yeah, you're getting the relief on the top side, so, you know, you can reinvest it into the rest of the franchise after, you know, taking a more conservative approach the last couple of years. Okay, makes sense.

The End

Speaker Change: I guess that that probably covers it because I was going to ask about the fee income as well And you kind of trumped me on that and gave me gave us some insight on that so yeah I think that's it everything else has been asked and answered so thank you very much for the the color and insight today

Great. Thank you, Damon. Thanks, Damon. Appreciate it.

Moderator: Thank you. We have no further questions in the queue, so I'll turn the call back over to Ned Handy for any closing comments.

Thanks, Lydia, and thank you for joining us today.

Moderator: We've presented a clear picture of our current state, the positive impact of the fourth quarter capital raise.

Moderator: and our plans going forward. I'd also like to note that on August 22nd of 2025, Washington Trust will celebrate our 225th year.

And as we mark this

Moderator: Occasion, we're focused on continuing our legacy of making a meaningful difference in the places we live and work and enhancing value for our shareholders, our customers, employees, and the communities we serve. So we appreciate your time very much today and look forward to speaking with you again soon. Have a great day, everybody.

Moderator: This concludes our call. Thank you very much for joining. You may now disconnect your line.

Moderator: Unknown Attendee, Laura Hunsicker, Damon DelMonte, Unknown Executive, Edward Handy, Elizabeth Eckel, Ronald Ohsberg, Damon DelMonte, Unknown Executive, Edward Handy,

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