Q3 2025 Washington Trust Bancorp Inc Earnings Call
Speaker #1: From what is discussed on the call. 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.
Speaker #1: All of these materials and other public filings are available on our investor relations website at ir dot washtrust dot com. Washington Trust trades on NASDAQ under the symbol WASH.
Speaker #1: I'm now pleased to introduce today's host, Washington Trust Chairman and Chief Executive Officer, Matt Handy. Matt?
Speaker #2: Thank you, Sharon. Good morning and thank you for joining our third quarter conference call. We respect and appreciate your time and your interest in Washington Trust.
Speaker #2: I'll briefly comment on our financial results and then Ron will provide more details on the quarter. After our remarks, Mary and Bill will join us for the Q&A session.
Speaker #2: This quarter, we realized net income of $10.8 million. We resolved two credit exposures that resulted in an elevated provision for credit losses this quarter, as we detailed in an 8-K filed earlier this month.
Speaker #2: That said, we are confident in our current portfolio quality and that we will continue our long track record of strong credit performance. This quarter, we saw strong performance across our core business lines, with increases in margin, wealth revenues, and mortgage revenue.
Speaker #2: We also saw in-market deposit levels increase and AUM growth. This performance underscores our continued commitment to long-term value creation. Additionally, this quarter, we made several key investments to drive growth.
Speaker #2: We completed an asset purchase from Lighthouse Financial Management, which added AUM of approximately one hundred and ninety-five million dollars. This transaction also added four advisory and tax planning team members to our wealth management division.
Speaker #2: We also hired Jim Brown as senior executive vice president and chief commercial banking officer. Jim has more than thirty-eight years of experience in the financial services industry and extensive network and a proven track record in leading high-performing commercial banking teams.
Speaker #2: He's focused on building and deepening our commercial relationships and will be working closely with our Wealth Division on continuing to integrate these services. We are pleased with the direction we are headed in and excited about our investments in future growth.
Speaker #2: We look forward to continuing to build long-term relationships with our customers and support their financial service needs throughout their lives, whether they are buying a home, starting a business, or investing in the future.
Speaker #2: I'll now turn the call over to Ron for some additional details on the quarter. We'll then be glad to address any of your questions.
Speaker #2: Ron?
Speaker #3: Okay, thanks Ned and good morning everyone. for the third quarter, we reported net income of ten point eight million or fifty-six cents per share, compared to thirteen point two million or sixty-eight cents per share for the preceding quarter.
Speaker #3: Pre-provision pre-tax revenue, or PPNR, was up 17% from Q2 and 48% compared to the third quarter of last year. As previously disclosed, we resolved two significant credit exposures this quarter, which resulted in an elevated provision for credit losses.
Speaker #3: Net interest income in Q3 amounted to thirty-eight point eight million, up by one point six million or four percent on a late quarter basis, and by six point six million or twenty percent year over year.
Speaker #3: The margin was two forty, up by two up by four basis points, and up by fifty-five basis points compared to last year. Non-interest income comprised thirty-one percent of revenue, in Q3, up three percent compared to Q2, and up eight percent year over year.
Speaker #3: Wealth management revenues were up three percent, this includes a six percent increase in asset-based revenues in Q3, reflecting market appreciation and the purchase of one hundred and ninety-five million managed assets from Lighthouse Financial Management.
Speaker #3: And a period AUA totaled seven point seven billion, up five hundred and one million or seven percent. Mortgage banking revenues totaled three point five million, up fifteen percent for the quarter, and twenty-two percent year over year.
Speaker #3: Non-interest expense totaled thirty-five point seven million in Q3, down by eight hundred and four thousand or two percent. Salaries and employee benefits expense was down by three hundred fifty-one thousand or two percent, reflecting lower levels of performance-based compensation.
Speaker #3: Outsourced services declined by two hundred eighty-four thousand or six percent due to lower third-party software costs and volume-related changes. Our full-year effective tax rate is expected to be twenty-two point five percent.
Speaker #3: Turning to the balance sheet, total loans were down by eight million, in-market deposits were up one hundred and seventy-nine million or four percent from the end of Q2, and up by four hundred and thirty-one million or nine percent year over year.
Speaker #3: Wholesale funding was down twenty-one percent compared to June and fifty-three percent compared to last September. In our loan-to-deposit ratio decreased three point eight percentage points, to ninety-eight percent, as of September thirty.
Speaker #3: Total equity amounted to five hundred and thirty-three million, up by six million from the end of Q2. The dividend remained at fifty-six cents per share, in Q3 we repurchased two hundred and thirty-seven thousand shares at an average price of twenty-seven dollars and eighteen cents per share, and a total cost of six point four million.
Speaker #3: We repurchased an additional twenty-one thousand shares in October at twenty-six dollars and ninety-eight cents per share, to complete our seven million dollar internal allocation to this program.
Speaker #3: The dividend yield on these repurchases was eight point two six percent, which will reduce dividend payouts by about six hundred thousand dollars annually. As I mentioned earlier, we resolved two significant credit exposures this quarter.
Speaker #3: We recorded charges of $11.3 million on these loans and provided additional details in a Form 8-K filed on October 8.
Speaker #3: We have a well-established process to monitor credits and asset quality and do not believe that this quarter's results are indicative of any adverse credit trend.
Speaker #3: At September thirty, non-accruing loans were twenty-seven basis points on total loans, and we're concentrated in collateralized, residential, and consumer loans. Non-accruing commercial loan balances amounted to one million dollars.
Speaker #3: Past due loans were at 16 basis points of total loans, and we're essentially all collateralized, residential, and consumer. Non-accruing loans and past due loans are down 55% and 60% compared to last September.
Speaker #3: The allowance totaled thirty-six point six million, or seventy-one basis points of total loans and provided NPL coverage of two hundred and sixty-one percent. And at this time, I will turn the call back to Ned.
Speaker #2: Thank you, Ron. We'll now take any questions you might have about the quarter. Thanks, Lydia.
Speaker #4: Thank you, Ned. Please press star followed by the number one if you'd like to ask a question, and ensure your device is unmuted locally when it's your turn to speak.
Speaker #4: If you change your mind or your question's already been answered, you can withdraw your question by pressing star followed by the number two. Our first question today comes from Mark Fitzgibbon with Piper Sandler.
Speaker #4: Please go ahead, your line is open.
Speaker #5: Hey guys, good morning.
Speaker #2: Morning Mark.
Speaker #5: Ned, I wondered if you could share with us how much you have in remaining shared national credits, how big that book is?
Speaker #2: Yeah, I'm gonna turn to, to Bill on that, but it's a pretty limited portfolio question.
Speaker #3: It It is, it's about one hundred and seventy-three million, and it's split between CNI and, commercial real estate.
Speaker #5: Okay. And then, secondly, Bill, while I've got you, I think last quarter, in response to another analyst question, you said we have appropriate specific reserves on that, that one credit.
Speaker #5: I think what you had two point three million against it. W-what changed from th-then till now that caused you to have to take another six million dollar charge off on that, that loan?
Speaker #2: Sure. A lot of the other bank groups were in the exact same situation. We were operating off the information we had from our Asian bank and the advisors in the context of a Chapter 11.
Speaker #2: there were two primary means of recovery in chapter eleven. Both of which were significantly reduced following the end of the quarter in terms of the, the outcome.
Speaker #2: So, they came in at about maybe twenty percent or so of what was what the expectations had been. We had done our reserving at the end of the second quarter based on what at the time was a fairly conservative view of what the recovery might be.
Speaker #2: It turns out that was certainly erroneous and we, along with all the other banks, ended up taking a very significant loss.
Speaker #5: Okay. and then I guess, kind of a similar question. On the office building sale, it looked like the reduction in value versus the, the charge off necessitated essentially a, a seventy percent reduction in the value of the property versus where you were carrying it last quarter.
Speaker #5: I, I, I guess I'm curious, how could you be off by that much if you, if you had recent appraisals and valuations done on it, when it went non-accrual?
Speaker #2: Right. Well, a-as required by accounting, we had this marked to its most current appraised value less selling costs. And that happened to be you know, about a third of what this property was originally estimated to be.
Speaker #2: So we had it marked down to what the appraiser suggested was the appropriate time, even accounting for difficult market. We ended up liquidating it because we weren't seeing any positive momentum.
Speaker #2: And as you understand, it's very difficult for appraisals of office properties in this market, especially when there's not consistent demand, to get the numbers right.
Speaker #2: So ultimately, we decided that instead of a series of descending appraisals, based on litigant information, we'd take an actual note sale offer and, and dispose of it that way.
Speaker #2: So that's why that final mark was made.
Speaker #5: Well, then I guess I'm curious, how do you have any confidence in any of the appraisals that you have on those other office portfolios?
Speaker #5: How do you what makes you feel comfortable that those are good numbers?
Speaker #2: I feel comfortable those are good numbers because they're different properties in different markets. And so, when there's some leasing momentum underway, appraisal estimates tend to have more validity.
Speaker #2: The actual sub-market in which the final charge off occurred was a town in Connecticut where there had literally been no office deals done, no office leases.
Speaker #2: In the last two years, so that's when we decided, especially because opportunities for alternative redevelopments weren't happening. We decided to take the loss and move on.
Speaker #2: now, I do want to also point out that, for example, we had another property in Connecticut that was also non-accrual, happened to be related to the same borrower, where we sourced the momentum and we ended up recovering ninety percent of that with a short sale.
Speaker #2: So that's why I'm saying it's really it really comes down to the property and the and the market that it's in. And so I feel very comfortable that we're taking a conservative approach with our other office properties as well.
Speaker #5: Okay, we've got a very active watched asset process that where we're going over this as a senior team intensively. Once every at least once every quarter, and so we, we feel comfortable with our numbers.
Speaker #2: Okay. But in fairness, Bill, you felt comfortable last quarter with the two point three million dollar reserve on that, that loan as well? We We had we did, along with about two hundred million dollars worth of other bank lenders, is talking about the funds of redeal.
Speaker #5: Gotcha. okay. Just changing gears, Ron, I wondered if you could share with us what client flows were in the wealth management business this quarter?
Speaker #3: Yeah, no, we're not doing client flows anymore.
Speaker #5: Okay. Y-you're just unwilling to share that anymore with us?
Speaker #3: Yeah, we, we, we brought our disclosures in line with our peers.
Speaker #5: Okay, lastly, I wondered if you could share with us any thoughts on the margin?
Speaker #3: Yeah, we're looking at margin expansion in the fourth quarter of we'll call it five basis points. plus or minus.
Speaker #5: Thank you.
Speaker #3: Well.
Speaker #4: Thank you. Our next
Speaker #2: Thanks, Mark.
Speaker #4: Our next question comes from Damon DelMonte with KBW. Please go ahead.
Speaker #5: Hey, good morning everyone. Hope you're all doing well. so first question, just wanted to talk a little bit about morning. I just want to talk a little bit about loan growth and kind of how you're, you're looking at your pipelines going into year end and, and kind of where you think that would be tracking after, you know, kind of a flattish third quarter here.
Speaker #2: Yeah, you know, I think w Damon, we'll stick with the sort of the low single digit growth for the for the year. We did have a couple of paydowns at right at the end of the quarter, the pipeline is still kind of in the hundred and eighty million dollar range, so, so pretty healthy from from where it started at the beginning of the year.
Speaker #2: really excited that we brought Jim Brown on board. He's got a got a bringing up a brand new Rolodex of, of opportunities COIs and, and and the like to to the bank, and he's, he's he's already busy, you know, sort of strengthening the existing team and, and building bridges across our various businesses and so I'm, I'm really excited about the prospects that he brings.
Speaker #2: But, but pipelines healthy, you know, other than I the formation in the in the quarter actually, you know, we had a hundred and fifteen million dollars of new formation.
Speaker #2: We just had a hundred and three million dollars of payoffs. some of them rather large right at the right at the end of the quarter, so you know, I I-I'm I'm gonna stick with that, you know, sort of low single digit growth and and we'll, we'll keep the pedal to the metal in the fourth quarter.
Speaker #5: Got it. Okay, that's helpful, thanks. and then, you know, maybe one for, for Ron on the on the expense side here. you know, with the addition of with Lighthouse and then, you know, some higher even you guys have made in any kind of look at where expenses are kind of here in the this last quarter?
Speaker #5: I mean, you, you kind of expect things to kind of go back up towards like around a thirty-six million, maybe a little bit higher per quarter level once you kind of readjust for accruals and whatnot?
Speaker #2: Yeah. Yeah, yeah, so, so, so Damon, I would say
Speaker #3: that, you know, the guidance that we provided in January was about thirty-seven million per quarter. A-and we've been running you know, below that pretty, pretty consistently for the first three quarters.
Speaker #3: We do have some timing issues. We're going to have higher levels of marketing in the fourth quarter. We're going to have a $500,000 contribution to our foundation in the fourth quarter.
Speaker #3: So I, I, I would say thirty-seven, which is kind of what we originally guided in January, is, is, is close to where we'll be in the fourth quarter.
Speaker #5: Gotcha. Okay, that's helpful. and then I guess just lastly, the that I hear the commentary on the buyback that you basically what you bought during the quarter plus what you bought in October, got you to your seven million dollar internal limit.
Speaker #5: So, should we not expect any more buybacks for the remainder of the year? Is that fair?
Speaker #3: Yeah, it, it, you know, Damon, we'll always look at it. I can tell you that we, you know, we did what we said we, you know, internally what we said we were gonna do.
Speaker #3: and, and we're gonna take a pause right now and, and we'll, we'll continue to, to reevaluate whether it makes sense to do more. And, you know, balancing that off against, you know, redeploying our capital back into growth.
Speaker #3: So, at this point in time, we have no plans to do additional share repurchases.
Speaker #5: Got it. Okay. that's all that I had for now. Thank you very much.
Speaker #3: Thanks, Damon.
Speaker #2: Thanks, Damon.
Speaker #4: Thank you. As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. We'll move to our next question from Laurie Hunsicker with Seaport Research.
Speaker #4: Please go ahead.
Speaker #6: Great. Hi, thanks for the the morning. sticking where Damon was on the buyback, and pausing the bu I mean, it was so great to see you all repurchasing shares.
Speaker #6: And you're still so far below your spot. You know, and, and obviously with your commercial non-performers down to one million and, and you know, outside of the lumps this quarter.
Speaker #6: I mean,
Speaker #2: you know, to, to, to ramp up our commercial lending. So we want to make sure that we've got appropriate capital levels to support growth.
Speaker #2: You know, a-a-and I guess I will say, w I'm not ruling out whether or not we do some more. I'm just saying at, at this point in time, we're, we're gonna take a pause and, and see what, what, what's happening.
Speaker #2: But, yeah, from a credit standpoint, we, we actually feel pretty good having, having dealt with these two problems this quarter. yeah, that, that Laurie, that's the best I can tell you.
Speaker #2: I mean, th-there's arguments either way to, to do more or, or to or to sit tight and, and fill the time being we're gonna sit tight.
Speaker #6: Gotcha. Okay. and then just going back to credit, the hundred and seventy-three million in SNCC, what is the breakdown, I guess, Ron or Bill, between what's pre and what's CNI?
Speaker #5: there's ninety million of, of pre, and eighty-four million of CNI.
Speaker #6: Okay. And, just double-checking here, NDFI exposure, both of zero, how are we thinking?
Speaker #5: No. We
Speaker #6: What's, what is your NDFI exposure?
Speaker #5: We don't have we don't have any NDFI exposure.
Speaker #6: Perfect. Okay, perfect. Okay. And then, office, just switching back over. So just comparing link quarter within that class A bucket, and by the way, your disclosures are great, really, really appreciate it.
Speaker #6: But it looks like you had, within Class A, twenty-two million pop into special mention. Obviously, I understand what you cured, etc. You gave a lot of detail.
Speaker #6: earlier in the month, and obviously here. So it's but just the twenty-two million is not part of anything. So can you help us think about, I guess, what, what is that and how to think about it?
Speaker #6: What's the maturity?
Speaker #5: Sure. That's an office building, a Class A office building, actually two of them, in a strong suburb of Hartford. Occupancy has been at 60 percent.
Speaker #5: However, this was downgraded to special mention because two tenants are vacating. They've actually replaced those tenants, and so they will be getting back up to an occupancy of sixty percent.
Speaker #5: They also have an LOI out, which in for which the lease is imminent, that we should get them up to a point at which it's got positive debt service coverage.
Speaker #5: Very strong sponsor, and in addition to the discussion we had earlier about appraised values in office, it's important to understand that the sponsorship, support for any given property also gives us a lot of confidence in terms of where we're valuing things.
Speaker #5: So we think this is one that, like many office properties, is kind of on the simmer. We don't think this is gonna boil over because where it is, they're seeing a fair amount of leasing volume. However, we did take the downgrade as a precaution given that we knew there were some upcoming vacancies.
Speaker #6: Gotcha. And when sorry, when does this loan mature?
Speaker #5: You know, I'm looking at my write-up and I can't tell you, so I'll have to I'll have to let you know that offline.
Speaker #6: Okay. That's, that's perfect. Okay.
Speaker #5: Not, not near term, but.
Speaker #6: Okay. That's helpful. Okay. And then just switching gears, I'm just going back to the income statement, just two questions here. The first is, other other income within the non-interest income bucket, the six hundred nineteen thousand, it seems like there might have been some one-time gains in that number.
Speaker #6: My thinking about that is, write or if so, can you?
Speaker #5: Yeah, or there was a miscellaneous item of about $2.50 in there. That's correct.
Speaker #6: Okay. Perfect. Okay. And then, obviously, you know, you've worked you worked down the wholesale, which is great. You're advances came down also. But it looks like just based on the averages, your FHLB advances came down really kind of at the end of the quarter, if I'm backing into that right.
Speaker #6: maybe just help us think about where that's going.
Speaker #5: Yeah. so we-we've had strong deposit growth in the quarter. of course, the FHLB gets paid off at maturity, so, so we've got staggered maturities most of that's pretty short term.
Speaker #5: I think you've got another three hundred and fifty million maturing in the fourth quarter. So, you know, we've got kind of elevated levels of, of cash on deposit related to those deposit inflows.
Speaker #5: So we will just pay down the FHLB as it comes due.
Speaker #6: Okay, great. Sit there. Thank you. Oh, one more thing, sorry. If I so oh.
Speaker #5: The The maturity the maturity on that deal we discussed, the seven rated, is October of twenty-seven. So we've got a couple years to run on that.
Speaker #6: Over twenty-seven. Maturity, perfect. Okay, and sorry, one more just on margin, do you have the spot margin, Ron? For September?
Speaker #3: Yeah, yeah, I'll call it two forty-three.
Speaker #6: Two forty-three. Great. Thanks so much.
Speaker #3: You're welcome.
Speaker #2: Thanks, Laurie.
Speaker #4: Thank you. We have no further questions, so I'll pass you back over to Ned Handy for any closing comments.
Speaker #2: Thanks, Lydia. Well, this quarter we celebrated Washington Trust two hundred and twenty-fifth birthday, which really is a milestone that reflects our enduring commitment to customers and communities.
Speaker #2: We appreciate your continued support and thank you for your time today and look forward to speaking to all again soon. Thanks, everybody. Have a great day.