Washington Trust Bancorp Q4 2024 Earnings Report

Washington Trust Bancorp EPS Results

• Actual EPS: $0.59
• Consensus EPS: $0.57
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

Washington Trust Bancorp Revenue Results

• Actual Revenue: $45.96 million
• Expected Revenue: $31.74 million
• Beat/Miss: Beat by +$14.22 million
• YoY Revenue Growth: N/A

Washington Trust Bancorp Announcement Details

• Quarter: Q4 2024
• Date: 1/29/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, January 30, 2025
• Conference Call Time: 8:30AM ET

Washington Trust Bancorp (NASDAQ:WASH) is the parent company of The Washington Trust Company, a full-service community bank headquartered in Westerly, Rhode Island. Founded in 1800, Washington Trust is recognized as one of the oldest continuously operating banks in the United States.

The company provides a range of financial services to individuals, families, businesses, and institutions. Its offerings include personal and commercial deposit accounts, consumer and business lending, residential mortgages, cash management, online and mobile banking, and other traditional banking services. Through its wealth management operations, Washington Trust also provides investment management, financial planning, trust administration, and related advisory services.

Washington Trust primarily serves customers across Rhode Island and southeastern Connecticut, with additional banking and wealth management operations in parts of Massachusetts. Its business is organized around community banking and wealth management, supported by a network of branches, financial professionals, and digital banking services.

Washington Trust Bancorp Q4 2024 Earnings Call Transcript

Key Takeaways

• Washington Trust reported a net loss of $60.8 million in Q4, driven by balance sheet repositioning losses, though adjusted net income was $10.4 million ( $0.59 per share).
• The bank executed a $70.5 million capital raise in December and repositioned its balance sheet—selling lower-yielding assets, reinvesting in higher-yield securities and reducing expensive wholesale funding—to enhance future revenue.
• Net interest income rose 2% to $32.9 million with the margin up 10 bps in Q4, and management forecasts net interest income of $230–235 million in Q1 2025, rising to $245–250 million by Q4 2025.
• Asset quality remains strong: non-accrual loans improved to 0.45%, the Q4 provision for credit losses was $1 million, and full-year 2024 net charge-offs totaled $2 million.
• Total loans fell 7% year-over-year (residential down 16% due to loans held for sale), while core deposits increased 1% and brokered/FHLB funding declined significantly.

Presentation

[Operator]

Good morning and welcome to Washington Trust Bancorp's Conference Call. My name is Lydia and I'll 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 one to get in the queue. As a reminder, today's call is being recorded. I'd now like to turn the call over to Sharon Walsh, Senior Vice President, Marketing Strategy and Planning. Please go ahead.

[Sharon Walsh, SVP of Marketing Strategy and Planning at Washington Trust]

Thank you, Lydia. Good morning and welcome to Washington Trust Bancorp'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, 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 our 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 yesterday, 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.washtrust.com. Washington Trust trades on NASDAQ under the symbol WASH.

[Sharon Walsh, SVP of Marketing Strategy and Planning at Washington Trust]

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

[Ned Handy, CEO at Washington Trust]

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. 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. We previously announced a December capital raise of $70.5 million and subsequent balance sheet repositioning, which entailed selling lower yielding securities and loans and reinvesting into higher yielding securities and paying down expensive wholesale funding. 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. The reduction of maturing wholesale funding will occur over the next few months and Ron will provide some detail beyond that.

[Ned Handy, CEO at Washington Trust]

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

[Ned Handy, CEO at Washington Trust]

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, CFO at Washington Trust]

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. Net interest income was $32.9 million, up by $674,000, or 2%. The margin was 1.95%, 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. Adjusted non-interest income amounted to $16 million and was modestly down by $229,000, or 1%. Wealth management revenues were $10 million, up by $60,000, or 1%. And 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%. Turning to non-interest expenses, these totaled $34.3 million and were down by $212,000, or 1%.

[Ron Ohsberg, CFO at Washington Trust]

Salaries and benefits expense was up by $525,000, or 2%, reflecting adjustments to performance-based compensation accruals. Also, advertising and promotion expense decreased by $297,000 in the fourth quarter due to timing. Adjusted income tax expense amounted to $3.2 million and the adjusted effective tax rate was 23.7% for the fourth quarter. We expect the full year 2025 effective tax rate to be about 22.5%. Turning to the balance sheet, total loans were down by $377 million, or 7%. Residential loans decreased by $403 million, or 16%, largely due to the reclassification of $345 million to loans held for sale. Total commercial loans increased by $29 million, or 1%. And market deposits were up $26 million, or 1%. And brokered deposits were down $82 million, and FHLB borrowings were down by $175 million. Our loan-to-deposit ratio decreased from 106.2 to 105.5. Our asset and credit quality metrics remained solid.

[Ron Ohsberg, CFO at Washington Trust]

Non-accrual loans were 45 basis points at the end of the year, compared to 56 basis points at September 30, and past due loans were 23 basis points, compared to 37 at September 30. The allowance totaled $42 million, or 0.82% of total loans, and provided NPL coverage of 180%. The fourth quarter provision for credit losses was $1 million. We had net charge-offs of $1.9 million in the fourth quarter and $2 million for the full year of 2024. This time, I'll turn the call back to Ned.

[Ned Handy, CEO at Washington Trust]

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

[Operator]

Thank you. Please press star followed by the number one if you'd like to ask a question, and ensure your devices are muted locally when it's your turn to speak. If you change your mind and wish to withdraw your question, please press star followed by the number two. We'll just pause here momentarily. We have a question from Laurie Hunsicker with Seaport Research Partners. Your line's open. Please go ahead.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

Yeah, hi. Thanks. Good morning, Ned and Mary.

[Ned Handy, CEO at Washington Trust]

Good morning.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

And Ron.

[Ned Handy, CEO at Washington Trust]

Good morning.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

And Bill. And Sharon. So, hoping, Ron, that you can start with margin and just really help us think about all of the moving parts, especially because some of this obviously isn't even reflected now until the end of January. So, maybe 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, especially in light of your loan-to-deposit ratio, how do you think about CDs, etc. So, anything you can help us think about on margin. And then also, I just wanted to clarify your swap expiration was supposed to be a 12 basis point pickup starting at the beginning of May. Just wanted to check on that too.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

So anything you can help us with in margin would be great.

[Ned Handy, CEO at Washington Trust]

Yeah. So Laurie, just on that swap piece, that's May of 2026.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

Is that May 1st?

[Ned Handy, CEO at Washington Trust]

Yeah.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

Okay, and that's still 12 basis points?

[Ned Handy, CEO at Washington Trust]

Yeah. Yeah. What we published hasn't changed.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

Perfect.

[Ned Handy, CEO at Washington Trust]

Yeah. The balance sheet repositioning will be very impactful to 2025. We're projecting a NIM of between 2.30% and 2.35% for the first quarter. That will increase over the course of the year to about 2.45%-2.50% in the fourth quarter. Over that span, we expect our average earning assets to be in the $6.3 billion to $6.4 billion range after the settlement of the loans, which we sold on Friday. That'll bring our earning asset balances down somewhat, and the expectation is that we will be paying down primarily FHLB funding over the next couple of months. The spot margin for December was 2.07%.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

Okay. And then just how are you thinking about deposits and CDs and repricing there?

[Ned Handy, CEO at Washington Trust]

Yeah, so the Fed's cut four times, and we will continue to see, this is included in the numbers I just gave you, but we still have some short-term maturing wholesale funding brokered CDs over the next few months 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. Right now, brokered CDs are somewhat more expensive than FHLB, and when that reverses, then we'll rely a little more heavily on that, but the trend on wholesale funding is to be paying it down anyway.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

Okay. Okay, and then on capital, I just want to clarify the 2.199 million issuance in December. Does that include the shoe?

[Ned Handy, CEO at Washington Trust]

Say that again, Laurie.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

Is the shoe already in those numbers?

[Ned Handy, CEO at Washington Trust]

I'm sorry, Laurie.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

Does it include the shoe?

[Ned Handy, CEO at Washington Trust]

Yes. The additional is the shoe.

[Ron Ohsberg, CFO at Washington Trust]

It included the shoe upsize.

[Ned Handy, CEO at Washington Trust]

Yes. Yes. I'm sorry. I couldn't hear you clearly, but yeah.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

Okay. So that's all done.

[Ned Handy, CEO at Washington Trust]

Yep. Yep. It's all done.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

Okay. So that's all collected as of December 31st. Okay. And then, Ned, just a question for you on dividend. Obviously, it's looking substantially more safe. Can you just comment on that and target payout ratio, how you're thinking about that?

[Ron Ohsberg, CFO at Washington Trust]

Yeah.

[Ned Handy, CEO at Washington Trust]

Yeah.

[Ron Ohsberg, CFO at Washington Trust]

Laurie, it's an important part of this trend.

[Ned Handy, CEO at Washington Trust]

Go ahead, Ron.

[Ron Ohsberg, CFO at Washington Trust]

Yeah. So.

[Ned Handy, CEO at Washington Trust]

Yeah. No.

[Ron Ohsberg, CFO at Washington Trust]

Yeah. We're not planning on making any changes to the dividend, Laurie.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

Perfect. Okay.

[Ned Handy, CEO at Washington Trust]

But the coverage is better.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

And the credit.

[Ned Handy, CEO at Washington Trust]

But the coverage ratio is obviously better.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

Right. Much better. Okay. Just wanted to hear it from you. Okay. Credit, can you just help us think about a couple of things, I guess, with respect to office? The $10.5 million resolution, that's awesome. You stated that was coming. It came. How much in charge-offs was that this quarter and any color you can give us there? And then, 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.

[Ned Handy, CEO at Washington Trust]

Bill, do you want to take that?

[Bill Wray, Senior Executive Vice President and Chief Risk Officer at Washington Trust]

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 the other one you talked about that came in is actually under agreement to be resolved, 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 keep these numbers at these low levels.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

Okay. Great. And the $3.3 million, that was in office. Is that correct?

[Bill Wray, Senior Executive Vice President and Chief Risk Officer at Washington Trust]

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

[Laurie Hunsicker, Analyst at Seaport Research Partners]

That's under agreement. Okay. Okay. Great. And then just two more office questions. What is your overall office reserve now? And then also, do you have any kind of a refresh on the leasing, that $20.5 million 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 number? Thanks.

[Bill Wray, Senior Executive Vice President and Chief Risk Officer at Washington Trust]

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 C&I. We don't have an update to drive it. But our CRE segment, which includes office, I think has, I'm just guessing here, about 125 basis points of reserve. And then the way we manage office within that is we use qual factors to reflect the fact that appraisals and other things are definitely under stress. So that's, again, no specific office reserve, but our CRE segment is very adequately reserved. And then your other question was on the large lab space, which is now 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 they're especially with the significant investment. Okay.

[Laurie Hunsicker, Analyst at Seaport Research Partners]

Great. Thank you.

[Operator]

Thank you. As a reminder.

[Ron Ohsberg, CFO at Washington Trust]

Thanks, Laurie.

[Operator]

Please press star followed by one to ask a question. We have a question from Damon DelMonte with KBW. Please go ahead. Your line is open.

[Damon DelMonte, Managing Director of Equity Research at KBW]

Hey. Good morning, everyone. Hope you're all doing well. Sorry. I thought I had queued in.

[Ron Ohsberg, CFO at Washington Trust]

Oh, yeah.

[Damon DelMonte, Managing Director of Equity Research at KBW]

Wondering why I wasn't being called on, but apparently, I didn't queue in, so. 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. Just kind of wondering what your thoughts are now that that's behind you as far as loan growth and opportunities. Now that you've kind of freed up some capacity on the balance sheet and some restraint on the margin, do you feel like loan growth kind of going forward could kind of go back to what we've seen in years past, or you think it's still more of a kind of a conservative approach for a few more quarters?

[Ned Handy, CEO at Washington Trust]

Yeah. It's a great question, Damon. So we're building back the pipeline. You know in 2024, we purposely kind of slowed down the loan growth side of things, and so the pipeline's coming back. We're seeing opportunity. We're kind of thinking about lowish, 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 leaning towards C&I. We've got the CRE concentration limit that we're aware of. There's no issue there, but it's over 350. And so we need to be careful on that front. We are still out looking at real estate deals. We're seeing opportunity. The pricing is decent. The structure's good. So 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.

[Ned Handy, CEO at Washington Trust]

Our priority 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 as people are wondering about the longer-term picture of rates. And so it's an interesting environment, but there is opportunity, and we think there might be upside opportunity to our current sightline, but the current sightline is kind of 3% on the commercial side. Resi, I should let Mary talk about, but Resi, we've been sort of running off the existing portfolio and then tilting the mortgage operation towards sales. So we're still thinking kind of 75% of the volume will be sold so that that side of the balance sheet won't grow. And Ron, I think we're actually, we're thinking that we'd have mild reduction in the portfolio over the next couple of quarters, correct?

[Ron Ohsberg, CFO at Washington Trust]

Yeah. That's right.

[Ned Handy, CEO at Washington Trust]

In the Resi portfolio.

[Damon DelMonte, Managing Director of Equity Research at KBW]

Got it.

[Ned Handy, CEO at Washington Trust]

Hope that helps, Damon.

[Damon DelMonte, Managing Director of Equity Research at KBW]

It does. It does. Yeah. Okay. Perfect. And then with regards to expenses, Ron, I mean, how are you kind of thinking about it from a year-over-year perspective of growth? If you were at $137 million for 2024, I mean, is it reasonable for kind of 2%-4% type of growth over the next year?

[Ron Ohsberg, CFO at Washington Trust]

Yeah, so yeah, with regard to guidance for the rest of the year, let me bring revenue in there as well, so for wealth, as you know, that largely tracks what the market does. We're assuming about a 5% increase in wealth revenue year over year. Mortgage, largely dependent on market conditions and what origination volume could be, but we are projecting, call it, a 5%-10% revenue growth on the mortgage line. We do need to reset expectations around salaries and benefits run rate, 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. We've reduced our headcount by about 40 people over the past two years.

[Ron Ohsberg, CFO at Washington Trust]

So we're going to do some reinvestment back there. Mortgage commissions will also track the mortgage gains, and those are seasonally concentrated in the second and third quarter. So all in, we're looking at an increase to our run rate on salaries and benefits and projecting, call it, $23.5 million per quarter. All of our other expenses are estimated about $13.5 million per quarter. So increased NIM, increased fee revenue, but we are also seeing an expense increase.

[Damon DelMonte, Managing Director of Equity Research at KBW]

Got it. Okay. So add those two. It's like 37. Okay. All right. So that makes sense. So I mean, yeah, you're getting the relief on the top side. So you can reinvest it into the rest of the franchise after taking a more conservative approach the last couple of years. Okay. Makes sense. I guess 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 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 color and insight today.

[Ron Ohsberg, CFO at Washington Trust]

Great. Thank you, Damon.

[Ned Handy, CEO at Washington Trust]

Thanks, Damon. Appreciate it.

[Operator]

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.

[Ned Handy, CEO at Washington Trust]

Thanks, Lydia. And thank you for joining us today. I hope we've presented a clear picture of our current state, the positive impact of the fourth quarter capital raise, 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 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.

[Operator]

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

Participants

Analysts

• Ned Handy, CEO at Washington Trust
• Ron Ohsberg, CFO at Washington Trust
• Laurie Hunsicker, Analyst at Seaport Research Partners
• Sharon Walsh, SVP of Marketing Strategy and Planning at Washington Trust
• Bill Wray, Senior Executive Vice President and Chief Risk Officer at Washington Trust
• Damon DelMonte, Managing Director of Equity Research at KBW