NASDAQ:WASH Washington Trust Bancorp Q1 2024 Earnings Report $27.96 -0.53 (-1.85%) As of 03:47 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. ProfileEarnings HistoryForecast Washington Trust Bancorp EPS ResultsActual EPS$0.64Consensus EPS $0.43Beat/MissBeat by +$0.21One Year Ago EPSN/AWashington Trust Bancorp Revenue ResultsActual Revenue$48.83 millionExpected Revenue$45.24 millionBeat/MissBeat by +$3.59 millionYoY Revenue GrowthN/AWashington Trust Bancorp Announcement DetailsQuarterQ1 2024Date4/22/2024TimeN/AConference Call DateMonday, April 22, 2024Conference Call Time10:00AM ETUpcoming EarningsWashington Trust Bancorp's Q2 2025 earnings is scheduled for Monday, July 21, 2025, with a conference call scheduled on Tuesday, July 22, 2025 at 8:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Washington Trust Bancorp Q1 2024 Earnings Call TranscriptProvided by QuartrApril 22, 2024 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Good morning, and welcome to Washington Trust Bancorp, Inc. Conference Call. My name is Brika, and I will be your operator today. Today's call is being recorded. And now I would like to turn the call over to Elizabeth B. Operator00:00:27Eckel, Executive Vice President, Chief Marketing and Corporate Communications Officer. Ms. Eckel? Speaker 100:00:37Thank you. Good morning, and welcome to Washington Trust Bancorp, Inc. Conference call for the 2024 Q1. Joining us this morning are members of Washington Trust's executive team: Ned Handy, Chairman and Chief Executive Officer Mary Nunes, President, Chief Operating Officer Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer and Bill Ray, 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. Speaker 100:01:11Our complete Safe Harbor statement is contained in our earnings release, which was issued earlier this morning, that as well as other documents that are filed with the SEC. All of these materials and other public filings are available on our Investor Relations website at ir.wash trust.com. Washington Trust trades on NASDAQ under the simple wash. I'm now pleased to introduce today's host, Washington Trust's Chairman and Chief Executive Officer, Ned Handy. Speaker 200:01:39Thank you, Beth, and good morning and thank you all for joining our Q1 conference call. We appreciate your time and interest in Washington Trust. I'll provide brief comments and then Ron Osberg will offer more detail regarding our Q1 performance. After our prepared remarks, Mary Nunes and Bill Ray will join us for the Q and A session. Our primary focus continues to be on ensuring the strength of our balance sheet while we work towards regaining historic levels of profit generation. Speaker 200:02:06We 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. 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 tool. 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. Speaker 200:02:46I'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. Ron? Speaker 300:02:53Okay. Thanks, Ned, and good morning. 1st quarter net income was $10,900,000 or $0.64 per diluted share. Net interest income was $31,700,000 down by about $1,000,000 or 3%. The margin was 184, down by 4 basis points. Speaker 300:03:10Average earning assets increased by $23,000,000 in the quarter and had a yield of $493,000,000 up by 12 basis points. On the funding side, average wholesale funding rose by $122,000,000 dollars and average end market interest bearing deposits decreased by $21,000,000 The rate on interest bearing liabilities increased by 14 basis points to 3.63. Prepayment fee income was $20,000 in the 1st quarter and $27,000 in the 4th quarter, no impact to margin in either period. Non interest income comprised 35 percent of total revenues and amounted to $17,200,000 up by $3,900,000 or 29 percent from Q4. The Q1 included $2,100,000 associated with the litigation settlement. Speaker 300:03:55Excluding this, non interest income was up by $1,800,000 or 13 percent from Q4. Wealth Management revenues were $9,300,000 up by $457,000 dollars and end of period AUA totaled $6,900,000,000 up by $270,000,000 or 4%. Mortgage banking revenues totaled $2,500,000 up by 952,000 dollars 76% of our originations in the quarter were salable compared to 66% in the 4th quarter. Turning to expenses, these were up by $1,800,000 or 5% from the 4th quarter. Salaries expense increased by $3,300,000 or 18%. Speaker 300:04:40Recall that last quarter, we reversed $3,400,000 in compensation accruals, which lowered 4th quarter expenses, excluding the salaries expense actually declined a bit. Other non interest expenses were down by $1,300,000 or 35 percent largely due to a $1,000,000 contribution made to our charitable foundation in the 4th quarter. In the Q1, the effective tax rate was 20.6%. We estimate our full year 2024 effective tax rate to be 21%. Turning to the balance sheet, total loans were up by $31,000,000 or 1% from December. Speaker 300:05:19Total commercial loans increased by $60,000,000 while residential loans declined by $19,000,000 In market deposits were essentially flat, down $20,000,000 from December 31. 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. We had 0 commercial real estate delinquencies. Speaker 300:05:53The allowance totaled $41,900,000 or 74 percent of total loans and provided NPL coverage of 136%. The Q1 provision for credit losses was a charge of $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. Speaker 200:06:14Thanks, Ron. And we'll now take questions. Operator00:06:19Thank you. We will take the first question from Mark Fitzgibbon of Piper Sandler. Your line is now open. Speaker 400:07:07Hey guys, good morning. Speaker 200:07:10Hey Mark. Hey Speaker 400:07:11Mark. I wondered if you could share with us, was the $2,100,000 litigation settlement that you had related to the Wealth Management business or was that something else? Speaker 300:07:23Yes, it was. Speaker 400:07:26So is that all the litigation surrounding those people leaving, has that been fully resolved with this settlement? Speaker 300:07:35Yes. That's the final resolution of it. Speaker 400:07:39Okay. 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 suggested you were assuming 3 25 basis point cuts in rates. Has that thinking changed as well? Speaker 300:07:57Yes. I mean, we're thinking our most recent forecast had 2 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 guidance. We think that the Q2 will be 180 plus or minus a small range around that. Speaker 400:08:20Okay. And then I think in the past quarter, you'd also talked about an expense run rate in that sort of $35,000,000 range, which incorporated the 2 branches you've opened thus far this year. Any other tweaks to that? Or do you still feel like that's a $34,500,000 $35,000,000 run rate range for expenses in the second quarter? Speaker 300:08:44Yes, I think $35,000,000 is a good number, Mark. It's a little higher than we did in the Q1. We will have some seasonal mortgage commission activity going through, probably have a little higher mortgage banking revenue in the second quarter as well Speaker 400:09:04due to seasonality. Okay. And just to pivot back to wealth management, it looked like client flows continue 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? Speaker 400:09:21And kind of what's the plan to sort of turn those flows positive again? Speaker 300:09:28Yes. So, no, the previously announced attrition is behind us. I would say, look, it was just a higher than normal people have life events. For instance, there was one state payout of $25,000,000 included in the quarter and those things happen. Nothing unusual happened in the quarter. Speaker 400:09:55But 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 that will stop? Is there some kind of plan to bring in new people to generate new business flows or? Speaker 300:10:12Yes. 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 200:10:41And 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 we're always interviewing new people. We've got some the private clients group has an opening in it right now that we're recruiting for. I think so there's always a look at the sales approach and it's a tough business to grow organically. Speaker 200:11:16We'd much rather be in it at scale as we are than not and take 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 500:11:34Okay. Speaker 400:11:35And then last question I have and it's 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 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 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? Speaker 300:12:15Yes. 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. We probably need some help with interest rates and no one knows what the timing of that would be. Speaker 300:12:37If 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 400:12:55But 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 300:13:07Yes. So we're focused on the total risk based capital ratio right now and that improved by 4 basis points in the quarter. So that's we've stabilized that ratio and we expect to see some modest improvement in that ratio going forward. And that gives us adequate capital to sustain the dividend. Speaker 200:13:28But Mark, my comment about opportunistic growth was a little further down the line, more of a longer term view. We've definitely slowed down RWA 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. Operator00:14:11We now have Damon Delmont of KBW. Speaker 500:14:16Hey, good morning, guys. Hope you're both doing well today. Just wanted to see if we 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? Speaker 500:14:32What are the expectations and kind of what are the means that you're going to use to do that? Thanks. Speaker 200:14:39So, thanks, Damon. Yes, so second quarter, we'll see actual turning the switch on 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 and probably in either late Q2 or Q3. We are we've also invested in a switch platform to help customers switch to us more easily. That will be rolled out this quarter. Speaker 200:15:16And 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 the sort of the sales culture side, we've got everybody in the company focused on deposit growth. We think it's our yes, 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 mix better. Speaker 200:15:47And so everyone, including all the commercial lenders are 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 are focused on growing our municipal deposits. So we're obviously, we want to grow the deposit base. And Ron, I think from an expectation standpoint, we're basically flat far this year. I think 1% or 2% growth would be a great target for the year. Speaker 200:16:26But 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. Speaker 300:16:38Yes. 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, 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. And that's not easy to do, and everyone is trying to do the same thing right now. Speaker 300:17:03And 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 500:17:10Got you. Okay. Appreciate that color. And then with regards to the loan growth and kind of outlook for that, I think you had 3% linked quarter annualized growth here in the Q1. 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. Speaker 500:17:29Has that shifted at all because of the results here in the Q1? Or do you still kind of expect balances to ultimately be flat throughout the year? Speaker 300:17:41Yes. 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 0 at this point in time, maybe a one off here or there. So I think it's just burning off. Speaker 300:18:06I think we had $240,000,000 of construction advances kind of budgeted over the course of the year, and that will be offset by Speaker 500:18:27Got it. And as you manage the growth, I mean, is there an approach to not turn away all the customers that could be seeking credit? I mean, are you is it like net net kind of going to be 0 because you're maybe moving away from some relationships and adding new ones that are strong or adding 2 current ones that are strong? Or what's the approach to kind of balance spigot and upset people? Speaker 200:18:54Right. That's a great question. And yes, so we're all of what you mentioned, we're going to sell some participation interest in existing loans, Yes, 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 refi 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 200:19:34And again, I think going forward, we'll probably be more of a lead participation sold 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 yes, definitely sensitive to customer relationships. Speaker 500:20:03Got it. Okay. And then just lastly on the provision outlook, good improvement there in 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 300:20:24Yes. And just in terms of guidance, I mean, I think we told you $1,000,000 a quarter at the January call. I would just stick with that. We came in a little better than that this quarter and it's probably a good assumption. Speaker 500:20:38Got it. Okay. That's all that I had. Thanks a lot. Appreciate it. Speaker 500:20:41Thanks, Damon. Operator00:20:46Thank you. And we will move on to the next question, which is from Laurie Hunsicker of Seaport Research. Speaker 600:21:03Yes. Hi, thanks. Good morning. Just wondered if we could go back to margin. Do you have Ron, do you have the spot margin for the month, month of March? Speaker 300:21:15Yes. It was 180. Speaker 600:21:19It 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 2024 look like? Speaker 300:21:37Yes. So I mean, we're still experiencing the same issues that other banks are with regard to mix shift between deposit categories. And I think the longer the Fed delays, the more that mix shift is kind of allowed to happen. We do think it would be helpful to see a cut and to start to reorient customer expectations around what their rates will look like. We've kept things on the wholesale side pretty short and our CD maturities are pretty short. Speaker 300:22:14So when the Fed starts to cut, we will be able to react in a reasonable period of time to try to reduce our funding costs. Yes, I mean, I think the longer it takes, it continues to put pressure on the margin for sure. Speaker 600:22:33Got you. Okay. That makes sense. And just 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 is that? Speaker 200:22:48Yes. The branch in Olneyville, which is a section of Providence, is due to come online in the Q2, but probably towards the end of it, Speaker 300:22:58I think. I think we're in the 3rd quarter. Speaker 100:23:00Beginning of 3rd quarter. Speaker 200:23:01Are we? July. Yes. Sorry, beginning of Q3. 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. Speaker 200:23:13But 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 and serve a great part of the population. So, and other than that, we don't have any other branches in sight right at the moment. Speaker 600:23:33Sorry. Speaker 200:23:34Yes, the Smithfield branch, which you've heard us talk about, opened in the Q1. Speaker 600:23:41Okay. Got you. And then your $35,000,000 quarterly expense run rate, does that have the new Olneyville branch fully baked in? Or how should we be thinking about that? Speaker 300:23:54Yes, that's in there. Speaker 600:23:57That's in there. Okay. Perfect. And then, just last, if we could get an office refresh, I mean, your credit is pristine, I guess, outside of office. Office is 2 thirds of your non performers. Speaker 600:24:12Can you just update us specifically that $18,700,000 any sort of new news there? I guess remind us. And then also that that's the Class B and then also the lab space, the $19,000,000 that's sitting in classified. Just any color you can provide us would be super helpful. Thanks. Speaker 200:24:38Bill, do you want to take that one? Speaker 700:24:40Sure. So the lab space is a large property that we are working with the 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. Speaker 700:25:08So I think it's more of them repositioning this and the fact that the sponsor is ready to put $20,000,000 into this to Goose Leasing is a good sign. So we feel again comfortable about this. And if 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 non accrual side, for Class B, you asked about the 18 point 7%. Speaker 700:25:44We 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. Maturities for the next eight quarters. Maturities for the next 8 quarters to see if there's anything we can get ahead of, anything we should be concerned about that should result in accounting moves, just went through that process. Speaker 700:26:25And there's we feel very comfortable about a half to 2 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 again improvements coming in the next couple of quarters. Speaker 600:26:52Great. Thanks. That's helpful. And thanks for all the details in the press release. I'll leave it Speaker 400:26:57there. Thank Operator00:27:04you. We have had no further questions registered. So I'd like to hand it back to the management team. Speaker 200:27:24Well, 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. Take care, everybody. Operator00:27:45Thank you all for joining today's conference call with Washington Trust Bancorp Inc.Read morePowered by Key Takeaways Washington Trust reported Q1 net income of $10.9 million ($0.64 per diluted share) as net interest income fell 3% and net interest margin contracted 4 basis points to 1.84%. Non‐interest income rose 29% sequentially to $17.2 million, bolstered by a $2.1 million litigation settlement, while wealth management and mortgage banking revenues also posted strong gains. Asset quality continued to improve, with non‐performing loans dropping to 0.54% of total loans from 0.79% and the allowance covering 136% of non‐performing loans. The bank is investing in deposit growth initiatives—such as an omni‐channel automated account opening tool, a switch platform and a refer‐a‐friend program—to reduce reliance on wholesale funding. For Q2, Washington Trust expects net interest margin around 1.80% (plus or minus) and an expense run rate of approximately $35 million, while maintaining its dividend to support capital ratios. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallWashington Trust Bancorp Q1 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Washington Trust Bancorp Earnings HeadlinesWashington Trust Bancorp (WASH) Coverage Initiated by B of A Securities | WASH Stock NewsMay 28 at 2:51 PM | gurufocus.comAnalysts Set Washington Trust Bancorp, Inc. (NASDAQ:WASH) Price Target at $32.50May 20, 2025 | americanbankingnews.comA grave, grave error.I thought what happened 25 years ago was a once- in-a-lifetime event… but how wrong I was. Because here we are, a quarter of a century later, almost to the exact day, and it’s happening again. May 28, 2025 | Porter & Company (Ad)PBOC’s Pan Warns Trade Frictions Threaten Trust in World EconomyApril 25, 2025 | msn.comIMF's Georgieva, World Bank's Banga need to earn Trump administration's trust, Bessent saysApril 25, 2025 | msn.comKBW Sticks to Their Hold Rating for Washington Bancorp (WASH)April 23, 2025 | markets.businessinsider.comSee More Washington Trust Bancorp Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Washington Trust Bancorp? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Washington Trust Bancorp and other key companies, straight to your email. Email Address About Washington Trust BancorpWashington Trust Bancorp (NASDAQ:WASH) operates as the bank holding company for The Washington Trust Company, of Westerly that provides various banking and financial services to individuals and businesses. The company operates in two segments, Commercial Banking and Wealth Management Services. The Commercial Banking segment offers deposit accounts, including interest-bearing and noninterest-bearing demand deposits, NOW and savings accounts, money market and retirement deposit accounts, and time deposits; various commercial and retail lending products, such as commercial real estate loans, including commercial mortgages, and construction and development loans; commercial and industrial loans comprising working capital, equipment financing, and financing for other business-related purposes; residential real estate loans that consist of mortgage and homeowner construction loans; and consumer loans comprising home equity loans and lines of credit, personal installment loans, and loans to individuals secured by general aviation aircraft. This segment also provides debit cards; automated teller machines (ATMs); telephone banking, internet banking, mobile banking, remote deposit capture, and other cash management services; and investment portfolio and wholesale funding services. The Wealth Management Services segment offers investment management; financial planning; personal trust and estate services, such as trustee, personal representative, custodian, and guardian; and settlement of decedents' estates, as well as institutional trust services comprising custody and fiduciary services for personal and institutional clients. Washington Trust Bancorp, Inc. was founded in 1800 and is headquartered in Westerly, Rhode Island.View Washington Trust Bancorp ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Bullish NVIDIA Market Set to Surge 50% Ahead of Q1 EarningsAdvance Auto Parts: Did Earnings Defuse Tariff Concerns?Booz Allen Hamilton Earnings: 3 Bullish Signals for BAH StockAdvance Auto Parts Jumps on Surprise Earnings BeatAlibaba's Earnings Just Changed Everything for the StockCisco Stock Eyes New Highs in 2025 on AI, Earnings, UpgradesSymbotic Gets Big Earnings Lift: Is the Stock Investable Again? 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There are 8 speakers on the call. Operator00:00:00Good morning, and welcome to Washington Trust Bancorp, Inc. Conference Call. My name is Brika, and I will be your operator today. Today's call is being recorded. And now I would like to turn the call over to Elizabeth B. Operator00:00:27Eckel, Executive Vice President, Chief Marketing and Corporate Communications Officer. Ms. Eckel? Speaker 100:00:37Thank you. Good morning, and welcome to Washington Trust Bancorp, Inc. Conference call for the 2024 Q1. Joining us this morning are members of Washington Trust's executive team: Ned Handy, Chairman and Chief Executive Officer Mary Nunes, President, Chief Operating Officer Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer and Bill Ray, 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. Speaker 100:01:11Our complete Safe Harbor statement is contained in our earnings release, which was issued earlier this morning, that as well as other documents that are filed with the SEC. All of these materials and other public filings are available on our Investor Relations website at ir.wash trust.com. Washington Trust trades on NASDAQ under the simple wash. I'm now pleased to introduce today's host, Washington Trust's Chairman and Chief Executive Officer, Ned Handy. Speaker 200:01:39Thank you, Beth, and good morning and thank you all for joining our Q1 conference call. We appreciate your time and interest in Washington Trust. I'll provide brief comments and then Ron Osberg will offer more detail regarding our Q1 performance. After our prepared remarks, Mary Nunes and Bill Ray will join us for the Q and A session. Our primary focus continues to be on ensuring the strength of our balance sheet while we work towards regaining historic levels of profit generation. Speaker 200:02:06We 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. 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 tool. 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. Speaker 200:02:46I'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. Ron? Speaker 300:02:53Okay. Thanks, Ned, and good morning. 1st quarter net income was $10,900,000 or $0.64 per diluted share. Net interest income was $31,700,000 down by about $1,000,000 or 3%. The margin was 184, down by 4 basis points. Speaker 300:03:10Average earning assets increased by $23,000,000 in the quarter and had a yield of $493,000,000 up by 12 basis points. On the funding side, average wholesale funding rose by $122,000,000 dollars and average end market interest bearing deposits decreased by $21,000,000 The rate on interest bearing liabilities increased by 14 basis points to 3.63. Prepayment fee income was $20,000 in the 1st quarter and $27,000 in the 4th quarter, no impact to margin in either period. Non interest income comprised 35 percent of total revenues and amounted to $17,200,000 up by $3,900,000 or 29 percent from Q4. The Q1 included $2,100,000 associated with the litigation settlement. Speaker 300:03:55Excluding this, non interest income was up by $1,800,000 or 13 percent from Q4. Wealth Management revenues were $9,300,000 up by $457,000 dollars and end of period AUA totaled $6,900,000,000 up by $270,000,000 or 4%. Mortgage banking revenues totaled $2,500,000 up by 952,000 dollars 76% of our originations in the quarter were salable compared to 66% in the 4th quarter. Turning to expenses, these were up by $1,800,000 or 5% from the 4th quarter. Salaries expense increased by $3,300,000 or 18%. Speaker 300:04:40Recall that last quarter, we reversed $3,400,000 in compensation accruals, which lowered 4th quarter expenses, excluding the salaries expense actually declined a bit. Other non interest expenses were down by $1,300,000 or 35 percent largely due to a $1,000,000 contribution made to our charitable foundation in the 4th quarter. In the Q1, the effective tax rate was 20.6%. We estimate our full year 2024 effective tax rate to be 21%. Turning to the balance sheet, total loans were up by $31,000,000 or 1% from December. Speaker 300:05:19Total commercial loans increased by $60,000,000 while residential loans declined by $19,000,000 In market deposits were essentially flat, down $20,000,000 from December 31. 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. We had 0 commercial real estate delinquencies. Speaker 300:05:53The allowance totaled $41,900,000 or 74 percent of total loans and provided NPL coverage of 136%. The Q1 provision for credit losses was a charge of $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. Speaker 200:06:14Thanks, Ron. And we'll now take questions. Operator00:06:19Thank you. We will take the first question from Mark Fitzgibbon of Piper Sandler. Your line is now open. Speaker 400:07:07Hey guys, good morning. Speaker 200:07:10Hey Mark. Hey Speaker 400:07:11Mark. I wondered if you could share with us, was the $2,100,000 litigation settlement that you had related to the Wealth Management business or was that something else? Speaker 300:07:23Yes, it was. Speaker 400:07:26So is that all the litigation surrounding those people leaving, has that been fully resolved with this settlement? Speaker 300:07:35Yes. That's the final resolution of it. Speaker 400:07:39Okay. 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 suggested you were assuming 3 25 basis point cuts in rates. Has that thinking changed as well? Speaker 300:07:57Yes. I mean, we're thinking our most recent forecast had 2 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 guidance. We think that the Q2 will be 180 plus or minus a small range around that. Speaker 400:08:20Okay. And then I think in the past quarter, you'd also talked about an expense run rate in that sort of $35,000,000 range, which incorporated the 2 branches you've opened thus far this year. Any other tweaks to that? Or do you still feel like that's a $34,500,000 $35,000,000 run rate range for expenses in the second quarter? Speaker 300:08:44Yes, I think $35,000,000 is a good number, Mark. It's a little higher than we did in the Q1. We will have some seasonal mortgage commission activity going through, probably have a little higher mortgage banking revenue in the second quarter as well Speaker 400:09:04due to seasonality. Okay. And just to pivot back to wealth management, it looked like client flows continue 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? Speaker 400:09:21And kind of what's the plan to sort of turn those flows positive again? Speaker 300:09:28Yes. So, no, the previously announced attrition is behind us. I would say, look, it was just a higher than normal people have life events. For instance, there was one state payout of $25,000,000 included in the quarter and those things happen. Nothing unusual happened in the quarter. Speaker 400:09:55But 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 that will stop? Is there some kind of plan to bring in new people to generate new business flows or? Speaker 300:10:12Yes. 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 200:10:41And 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 we're always interviewing new people. We've got some the private clients group has an opening in it right now that we're recruiting for. I think so there's always a look at the sales approach and it's a tough business to grow organically. Speaker 200:11:16We'd much rather be in it at scale as we are than not and take 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 500:11:34Okay. Speaker 400:11:35And then last question I have and it's 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 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 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? Speaker 300:12:15Yes. 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. We probably need some help with interest rates and no one knows what the timing of that would be. Speaker 300:12:37If 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 400:12:55But 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 300:13:07Yes. So we're focused on the total risk based capital ratio right now and that improved by 4 basis points in the quarter. So that's we've stabilized that ratio and we expect to see some modest improvement in that ratio going forward. And that gives us adequate capital to sustain the dividend. Speaker 200:13:28But Mark, my comment about opportunistic growth was a little further down the line, more of a longer term view. We've definitely slowed down RWA 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. Operator00:14:11We now have Damon Delmont of KBW. Speaker 500:14:16Hey, good morning, guys. Hope you're both doing well today. Just wanted to see if we 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? Speaker 500:14:32What are the expectations and kind of what are the means that you're going to use to do that? Thanks. Speaker 200:14:39So, thanks, Damon. Yes, so second quarter, we'll see actual turning the switch on 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 and probably in either late Q2 or Q3. We are we've also invested in a switch platform to help customers switch to us more easily. That will be rolled out this quarter. Speaker 200:15:16And 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 the sort of the sales culture side, we've got everybody in the company focused on deposit growth. We think it's our yes, 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 mix better. Speaker 200:15:47And so everyone, including all the commercial lenders are 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 are focused on growing our municipal deposits. So we're obviously, we want to grow the deposit base. And Ron, I think from an expectation standpoint, we're basically flat far this year. I think 1% or 2% growth would be a great target for the year. Speaker 200:16:26But 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. Speaker 300:16:38Yes. 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, 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. And that's not easy to do, and everyone is trying to do the same thing right now. Speaker 300:17:03And 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 500:17:10Got you. Okay. Appreciate that color. And then with regards to the loan growth and kind of outlook for that, I think you had 3% linked quarter annualized growth here in the Q1. 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. Speaker 500:17:29Has that shifted at all because of the results here in the Q1? Or do you still kind of expect balances to ultimately be flat throughout the year? Speaker 300:17:41Yes. 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 0 at this point in time, maybe a one off here or there. So I think it's just burning off. Speaker 300:18:06I think we had $240,000,000 of construction advances kind of budgeted over the course of the year, and that will be offset by Speaker 500:18:27Got it. And as you manage the growth, I mean, is there an approach to not turn away all the customers that could be seeking credit? I mean, are you is it like net net kind of going to be 0 because you're maybe moving away from some relationships and adding new ones that are strong or adding 2 current ones that are strong? Or what's the approach to kind of balance spigot and upset people? Speaker 200:18:54Right. That's a great question. And yes, so we're all of what you mentioned, we're going to sell some participation interest in existing loans, Yes, 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 refi 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 200:19:34And again, I think going forward, we'll probably be more of a lead participation sold 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 yes, definitely sensitive to customer relationships. Speaker 500:20:03Got it. Okay. And then just lastly on the provision outlook, good improvement there in 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 300:20:24Yes. And just in terms of guidance, I mean, I think we told you $1,000,000 a quarter at the January call. I would just stick with that. We came in a little better than that this quarter and it's probably a good assumption. Speaker 500:20:38Got it. Okay. That's all that I had. Thanks a lot. Appreciate it. Speaker 500:20:41Thanks, Damon. Operator00:20:46Thank you. And we will move on to the next question, which is from Laurie Hunsicker of Seaport Research. Speaker 600:21:03Yes. Hi, thanks. Good morning. Just wondered if we could go back to margin. Do you have Ron, do you have the spot margin for the month, month of March? Speaker 300:21:15Yes. It was 180. Speaker 600:21:19It 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 2024 look like? Speaker 300:21:37Yes. So I mean, we're still experiencing the same issues that other banks are with regard to mix shift between deposit categories. And I think the longer the Fed delays, the more that mix shift is kind of allowed to happen. We do think it would be helpful to see a cut and to start to reorient customer expectations around what their rates will look like. We've kept things on the wholesale side pretty short and our CD maturities are pretty short. Speaker 300:22:14So when the Fed starts to cut, we will be able to react in a reasonable period of time to try to reduce our funding costs. Yes, I mean, I think the longer it takes, it continues to put pressure on the margin for sure. Speaker 600:22:33Got you. Okay. That makes sense. And just 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 is that? Speaker 200:22:48Yes. The branch in Olneyville, which is a section of Providence, is due to come online in the Q2, but probably towards the end of it, Speaker 300:22:58I think. I think we're in the 3rd quarter. Speaker 100:23:00Beginning of 3rd quarter. Speaker 200:23:01Are we? July. Yes. Sorry, beginning of Q3. 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. Speaker 200:23:13But 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 and serve a great part of the population. So, and other than that, we don't have any other branches in sight right at the moment. Speaker 600:23:33Sorry. Speaker 200:23:34Yes, the Smithfield branch, which you've heard us talk about, opened in the Q1. Speaker 600:23:41Okay. Got you. And then your $35,000,000 quarterly expense run rate, does that have the new Olneyville branch fully baked in? Or how should we be thinking about that? Speaker 300:23:54Yes, that's in there. Speaker 600:23:57That's in there. Okay. Perfect. And then, just last, if we could get an office refresh, I mean, your credit is pristine, I guess, outside of office. Office is 2 thirds of your non performers. Speaker 600:24:12Can you just update us specifically that $18,700,000 any sort of new news there? I guess remind us. And then also that that's the Class B and then also the lab space, the $19,000,000 that's sitting in classified. Just any color you can provide us would be super helpful. Thanks. Speaker 200:24:38Bill, do you want to take that one? Speaker 700:24:40Sure. So the lab space is a large property that we are working with the 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. Speaker 700:25:08So I think it's more of them repositioning this and the fact that the sponsor is ready to put $20,000,000 into this to Goose Leasing is a good sign. So we feel again comfortable about this. And if 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 non accrual side, for Class B, you asked about the 18 point 7%. Speaker 700:25:44We 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. Maturities for the next eight quarters. Maturities for the next 8 quarters to see if there's anything we can get ahead of, anything we should be concerned about that should result in accounting moves, just went through that process. Speaker 700:26:25And there's we feel very comfortable about a half to 2 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 again improvements coming in the next couple of quarters. Speaker 600:26:52Great. Thanks. That's helpful. And thanks for all the details in the press release. I'll leave it Speaker 400:26:57there. Thank Operator00:27:04you. We have had no further questions registered. So I'd like to hand it back to the management team. Speaker 200:27:24Well, 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. Take care, everybody. Operator00:27:45Thank you all for joining today's conference call with Washington Trust Bancorp Inc.Read morePowered by