Good morning and welcome to Washington Trust Bancorp Inc'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.

Thank you, Lydia. Good morning and welcome to Washington Trust Bancorp Inc's conference call for the fourth quarter of 2024. Joining us this morning are members of the Washington Trust Executive Team, Ned Handy, Chairman and Chief Executive Officer, Mary Nunes, President and 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 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. I'm now pleased to introduce today's host, Washington Trust Chairman and Chief Executive Officer, Ned Handy. Ned?

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. 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. 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?

Thanks, Ned, and good morning, everyone. As Ned said, we reported a net loss of $60.8 million with $346 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 $195,000, 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%. Salaries and benefits expense was up by $525,000, or 2%, reflecting adjustments to performance-based compensation of rules. 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 million for the fourth quarter. We expect the full year 2025 effective tax rate to be about 22 and a half. 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%. In-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-deposits ratio decreased from 106.2 to 105.5. Our asset and credit quality metrics remain solid. Non-occurring 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 30th. The allowance totaled $42 million, or 82 percent of total loans, and provided NPL coverage of 180 percent. 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.

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

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 Hunziker with C4 Research Partners. Your line's open. Please go ahead.

Yeah, hi, thanks. Good morning, Ned and Mary and Ron 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 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, et cetera. 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. So anything you can help us with in margin would be great.

Yeah, so just on that swap piece, that's May of 2026. and is that may 1st yeah okay and that's still 12 basis points um yeah yeah what we published hasn't changed perfect so yeah so the balancing repositioning will be very impactful to 2025. we're projecting a nim of between 230 and 235 for the first quarter that will increase over the course of the year to about 245 to 250 in the fourth quarter over that span we expect our average earning assets to be in the 6.3 to 6.4 billion dollar range after the the settlement of the loans which we sold on friday so 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 207.

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

Yeah. So the Fed's cut four times and we will continue to see included, this is included in in the numbers i just gave you but you know we still have some short-term maturing wholesale funding brokered cds over the next few months um that will reprice on that and and also our regular retail cds will be repricing down um i know you you've asked about brokered cds in the past we will use those when it makes sense to um right now see brokered cds are somewhat more expensive than fhlb and when that reverses then we'll you know rely a little more heavily on that but the trend on wholesale funding is to be paying it down anyway.

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

Um, say that again, Lauren?

Is the shoe already in the numbers?

The green shoe. I'm sorry, Lauren.

It doesn't include the shoe.

Yes. The, the additional, I'm sorry, yes. It included the shoe. The upsides. Yes. Yes. I'm sorry.

I couldn't hear you. that's all clearly but yeah yeah perfect okay that's all as of december 31st okay um and then um now just a question for you on dividend um obviously it's looking substantially more safe can you just comment on that and target payout ratio how you're thinking about that yeah we're not it's an important part of this trend go ahead ron yeah so yeah we're not planning on we're not planning on making any changes to the dividend laurie perfect okay but the coverage and the credit but the coverage ratio is obviously better right much better okay just just wanted to hear it from you okay um credit um can you can you just help us think about a couple of things i guess with respect to office um the ten and a half million resolution that's awesome you stated that was coming it came um how much in in charge off was that this quarter and any color you can give us there and then i guess more broadly the 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 bill do you want to take um this is bill yeah i can jump

in the the charge-off was about the non-accord 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 you know keep these numbers at these low levels.

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

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

That's under agreement. Okay, great. And then 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 and a half million dollar lab which had gone sort of from zero to i had in my notes 52 percent as of last quarter do you have a refresh on that on that number thanks sure the first one we don't carry a a specific reserve against office we don't manage it as a segment because it doesn't work under cecil we don't have the enough data 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 we use, 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 50 50 more than 50 occupied leasing activity has been slow this quarter they're starting to see it pick up already for 2025 though so we feel there especially with the significant investment okay great thank you Thank you.

And as a reminder, please press star followed by one to ask a question. We have a question from Damon Damont with KPW. Please go ahead to your lines open.

Hey, good morning, everyone. Hope you're all doing well. Sorry, I thought I had queued in and wondering why I wasn't being called on, but apparently I didn't queue in. In any event, thanks for all the color on the outlook for the market. and the expected impact from the restructuring. That was very helpful. Just kind of wondering what your thoughts are, you know, now that that's behind you as far as, like, loan growth and opportunities. Now that you've kind of, you know, freed up some capacity on the balance sheet and some, you know, restraint on the margin, do you feel like loan growth kind of going forward could kind of go back to what we've seen in years past, or do you think it's still more of a, you know, kind of a conservative approach for a few more quarters?

Yeah, that'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 low-ish, you know, 3%-ish loan growth over the period on the commercial side. We'd like to lean that towards CNI. The pipeline right now is lean towards CNI. um we uh you know we've got the degree concentration limit that we're aware of we're not there's there's no issue there um but it's over 350 and and uh and so we need to we need to be careful on that front um we are still out looking at real estate deals we're seeing opportunity the pricing is decent the structure is good um so so uh you know we're 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. 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 uh it's an interesting environment but there there is opportunity and and we think there might be upside opportunity to our current site line but the current site line is kind of three three percent on the commercial side resi um i should let mary talk about but resi you know we've been sort of running off the existing portfolio um and then tilting the tilting the the resi operation towards sales so we're still thinking kind of 75 percent of the volume will be sold so that that that side of the port of the balance sheet won't grow um and and

ron i think i think we're actually should we're thinking that that we'd have mild reduction in the portfolio over the next couple of quarters correct yeah that's right from the resi portfolio hope that helps it does it it does um yeah okay perfect um and then with regards to um expenses uh ron i mean how are you kind of thinking about it from like a year-over-year perspective of growth if you're you know if you were at 137 million um for 24 i mean is it reasonable for kind of two to four percent type of growth over the next year yeah so uh yeah with regard to

guidance for the rest of the year let me let me bring revenue in there as well so um so for wealth you know as you know that largely tracks what the market does we're assuming about a five percent increase in wealth revenue year over year mortgage largely dependent on market conditions and and what origination volume could be but we are you know projecting call it a five to ten percent 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 you know we've reduced our headcount by about 40 40 people over the past two years 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 you know we're looking at an increase uh to our run rate on salaries and benefits and projecting you know call it 23 and a half million per quarter um all of our other expenses are estimated about 13 and a half per quarter so um you know increase nim increase fee revenue but we are also seeing an expense increase got it okay so add those two it's like yeah 37 okay all right so that makes sense so i

I mean, yeah, you're getting the relief on the top side. So, you know, you can reinvest it into the rest of the franchise after, you know, taking a more conservative approach the last couple of years. Okay, makes sense. 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. Thanks, Damon.

Appreciate it.

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

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

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