Good morning and welcome to the Washington Trust Bancorp, Inc. conference call. My name is Jayla and I will be your operator for today. If participants are needing assistance during this call at any time, please press star zero. Participants interested in asking a question at the end of the call should press star followed by one to get into the queue. Today's call is being recorded and now I will turn the call over to Sharon Walsh, SVP, Director of Marketing and Corporate Communications. Erin, you may proceed.

Thank you, Jayla. Good morning and welcome to Washington Trust Bancorp Inc's conference call for the first quarter of 2025. Joining us this morning are members of 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 earlier today, 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's Chairman and Chief Executive Officer, Ned Handy. Ned?

Thank you, Sharon, and good morning, and thank you all for joining our first 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. And after our prepared remarks, Mary and Bill will join us for the Q&A session. Washington Trust's first quarter results show the positive effects of our Q4 balance sheet restructuring with improvements in NIM, loan-to-deposit ratio, dividend coverage, and capital. We also saw our deposit growth strategies deliver results in both in-market deposits and new households. In-market deposits reached an all-time high of $5,013,000,000. dollars while intentional reduction in our residential mortgage portfolio elevated payoffs in our creed book and reduced line utilization outstripped new loan fundings in the quarter pipelines continue to build and we expect low single digit growth to be achievable our retail branches continue to compete well in the neighborhoods they serve and we've now supplemented them with a team of retail sales officers full-time sales professionals dedicated to surfacing loan and deposit opportunities complementary to our branch, business, and commercial bankers. Our teams continue to listen to our customers and prospects and to build solutions to the varied challenges and opportunities that arise in uncertain times. We remain committed in service to all the communities, customers, and stakeholders who count on our consistent presence and performance. I'll now turn the call over to Ron for additional details on the quarter. We'll then be glad to address any questions.

Ron? Yeah, thanks, Ned, and good morning, everyone. For the first quarter, we reported net income of $12.2 million, or $0.63 per share. Excluding two infrequent transactions that I will discuss shortly, adjusted net income amounted $11.8 million, or $0.61 per share. Net interest income was $36.4 million, up by $3.5 million, or 11% on a linked quarter basis. The margin was $2.29, up by 34 basis points, reflecting benefits from the recent balance sheet repositioning transactions. Turning to fees, as previously disclosed, five branch locations with a total net book value of $4.8 million were reported as held for sale at December 31st. Sale lease-back transactions were completed in Q1, and a pre-tax net gain on the sale of these properties tolling $7 million was recognized within non-interest income. Excluding infrequent transactions, adjusted net income amounted to $15.6 million and was down $394,000, or 2%. Wealth management revenues were $9.9 million, down by $158,000, or 2%, and mortgage banking revenues totaled $2.3 million, down $544,000, or 19%. Our mortgage pipeline at March 31st was $95 million, up by $35 million, or 59%, from the end of December. Turning to expenses, in connection with our previously disclosed termination of our qualified pension plan plan assets were distributed in q1 which resulted in a pre-tax non-cash pension settlement charge of 6.4 million being recognized within non-interest expenses this charge reflected the recognition of pre-tax actuary losses previously reported as a reduction in aoc i excluding the pension settlement adjusted non-interest expenses totaled $35.8 million up by $1.5 million or 4% compared to Q4. Salaries employee benefits expense was up $547,000 or 3% which includes higher payroll taxes due to the start of the new calendar year. Income tax expense in the first quarter totaled $3.5 million and the effective tax rate was 22.3%. Our full year effective tax rate is expected to be 22.4%. 4%. Turning to the balance sheet, total loans were down by $42 million, or 1% from December 31st. This included a 1% reduction in residential loans, as well as a 1% reduction in commercial loans due to higher-than-expected paydowns. In-market deposits were up by $195 million, or 4%. Broker deposits were down by $270 million, and FHLB borrowings were down by $275 million, reflecting increases in deposits and the redeployment of cash resulting from the balance sheet repositioning. A loan-to-deposit ratio decreased from 105.5 to 100.7%. Total equity amounted to $522 million at March 31st, up by $22 million from the end of Q4. The dividend remained at $0.56 per share. For regulatory capital, CET1 improved 56 basis points to 11.76% and total risk-based capital improved by 66% to 13.13%. Our asset and credit quality metrics remain solid. Non-occurring loans were 0.42% at March 31st and past due loans were 0.20% on total loans. The allowance totaled 41.1 million or 81 basis points of total loans and provided NPL coverage of 190 percent. The first quarter provision for credit losses was 1.2 million. This reflected loss allocations on individually analyzed non-accruing commercial loans and reflected our estimate of forecasted economic conditions. We had net charge-offs of 2.3 million in the first quarter. And at this point I will turn the call back to Ned.

Thank you Ron and at this point we'll open it up for questions.

At this time if you'd like to ask a question it is star followed by one on your telephone keypad. If for any reason you would like to remove that question, it is star followed by two. Again, to ask a question, it is star one. I'll pause briefly here if questions are registered. Our first question comes from Mark Fitzgibbon with the company Piper Sandler. Mark, your line is not open.

Hey, guys. Good morning. Morning, Mark. Hey, Mark. Hey, Ron. I was curious. How much will the quarterly operating costs be impacted as a result of the sale leaseback and the pension curtailment? Or maybe asked a different way, you know, what do you think sort of run rate operating expenses will look like going forward?

Yeah. So, on an annual basis, the sale leaseback adds about a net $700,000 to occupancy and equipment. But that was all embedded in the guidance that we gave in January.

Okay. And what about the pension curtailment impact?

Yeah, there's really no ongoing expense related to the pension. And again, that was all factored into guidance that we gave at year end. Mark, I would just say that the guidance I gave in the first quarter for expenses, both on the salary line and on the other expense line, is consistent.

Okay, great. And then secondly, I know, Ned, you mentioned that the pipelines were strong. Can you give us any color on sort of size and complexion?

Yeah, Mark, it's a little over $100 million on the commercial side, which is not, you know, historic highs, but maintained despite about $50 million of formation in the first quarter. So you know we're kind of in rebuild mode. The early stages of the pipeline are stronger. We don't typically report on proposals out. We report on stuff where proposals have been accepted. But that early stage is growing as well. So I feel confident that the low single-digit guidance we gave is still reachable and there's a lot of good activity going on. Mary, I don't know, on the resi side, do you want to?

Sure. So we're hitting the seasonal period where it starts to grow on the resi side. Again, a lot of that is going towards fee generation, but it's up from where it was at 331.

Okay, great. And then, Ron, assuming, you know, we follow the forward curve, I assume you think the net interest margin will continue to steadily rise a few basis points a quarter across the remainder of the year.

Is that a fair statement? yeah so we're thinking um well obviously a lot of uncertainty with with the feds rate policy um so i i'd like to just limit my guidance to the second quarter uh and we're looking at um at 235 for the quarter and then we'll see what happens okay um fair enough and then lastly i I guess I was curious what your longer, maybe intermediate term or longer term expectations or targets would be for the dividend payout ratio.

Where would you like to see that?

Yeah, we'd like to see it lower, obviously. We, you know, as we've said, Ed, you know, we have no intention of reducing it. So that from this point forward, I think that the point is to be improving net income and bringing the ratio down. um so you know we expect to be certainly in the in the you know mid to low 80s by the end of the year and we'll see where it goes from there not not likely to increase the dividend anytime soon for sure right but do you feel like um that could constrain your ability to grow when the environment starts to get better if if you've got such a high payout ratio yeah well it could You know, we'll just have to see when we get there.

Okay. Thank you.

Yep.

Our next question comes from Damon Del Monte with the company KBW. Damon, your line is now open.

I just wanted to circle back on the margin. You know, if we do see a couple of rate cuts in the latter part of this year, you know, how has your interest rate sensitivity changed given the, you know, the restructurings and other items that have occurred in the last, you know, few months for you guys?

Yeah. So we, we, you know, historically we were pretty asset sensitive and we strayed away from that. And I would say even, even with liability sensitive probably, you know, at an inopportune time for sure. The restructuring that we did took a lot of that liability sensitivity off. So we're much closer to rate neutral, I would say. So if, you know, we did see some good benefit in the fourth quarter from the Fed cutting the 100 basis points that they did. I think there's less upside to future rate reductions for us to improve the margin. um and you know so like as i mentioned you know we were seeing you know five or six basis points improvement in q2 and we'll just be you know working hard if the fed cuts uh to manage our deposit costs down as quickly and as much as we can got it okay but i don't think you'll see that yeah i don't think you'll see the expansion uh that we saw in the third and fourth quarter just because of the restructuring.

Got it. Okay. That's good. And then you guys had some good in-market core deposit growth this quarter. What kind of drove that, and has there been a shift in approach to gathering local deposits, or could you just provide a little color on that?

Yeah, so a couple things. So we had good growth in the quarter. About half of that was a single relationship, So I'll put that out there. So the other half of it, I think, was just good, strong organic deposit growth kind of across the board. Ned mentioned that we've hired a couple of retail sales officers to kind of get out there and do a better, you know, more targeted job of bringing in deposits. We're trying a few things on deposit promotion. I can tell you that deposit competition, you know, remains very intense. And, you know, we tried a couple of promotions in the quarter on both the CD and on the money market side. And so, a good deposit growth. So we'll see if we're able to maintain that.

Got it. Okay, great. That's all that I had for now. Great. Thanks, Damon.

Our next question comes from Laurie Hunsaker with the company Seaport Research Partners. Laurie, your line is not open.

Great. Good morning. Just going back to expenses, so when in the quarter did this sale leaseback happen?

Well, it happened in February and March.

Okay. So we really didn't see the drag back in. So when we think about it and we just sort of reiterated, obviously, similar guidance to what you gave out last quarter, you're still thinking, you know, if we're looking at the core number here the 35.8 million that probably still jumps to about 37 million even though things like snow removal etc come out yeah so so i think my guidance at at year end was for you know for all other expense which that would be in there about 13.5 million a quarter you know we were 13.3 in the first quarter but you know the 13.5 i think is a good estimate for the non-salary uh expense line okay and then what the the 2.7 million the other other was there anything

non-recurring in that that compares to a few million in the fourth quarter um yeah you know the other other you know and at year end we had some you know accrual adjustments and you know there's it's all other right so there's nothing there's nothing notable uh going through there Okay.

And then last question on a census here. You're still planning to make a Churchill Foundation contribution in the fourth quarter?

Yes.

Yes. Okay. Just making sure I got that right. And then just back to margin, and I know you've already touched on this, but do you have a spot margin for March?

I do. Yeah. For March, it was 231.

231. Okay, great. and then i'm going to to credit and i appreciate all the details you give but can you just refresh us um you know specifically on on some of these office properties and then just help us think about the the class b that that dropped from you know 10 million last quarter down to 7.6 million was that all charge offs or did something cure or how should we think about that and i guess specifically you know around the the loans that i would love a refresh i know you had a and these are numbers from last quarter 7.8 million class b that was 50 vacant um it was still performing is it you know how do you think about that you had a non-performer that come up and is is that still planned to resolve in 2q um you obviously had the 3.4 million class b that was due this quarter, was that where the charge-offs were? I mean, if you could just help us think about that, and then that last one, that big one, that $20.5 million lab, you know, any new news on that, any new appraisal? I think that's due in the fourth quarter, unless there's been some restructuring movement. Just anything on those four properties would be super helpful.

Yeah, I'll turn it over to Bill. I mean, we did see a reduction, Lori, and, you know, within non-accrual, you know, it's one relationship that has two loans that has three buildings in there. And so one of them has been under P&S. I think we talked about that on the call. That's about $3.3 million, I believe. It's still on track to settle, to close out in the second quarter.

And we did take a charge off on the other loan that was secured by the two properties so that's the only change quarter over quarter in the reported balances but bill i'll just let you um you know provide a little bit of color on the loans that we're talking about sure ron so as ron said about of that um non-accrual we again it'll close when it closes but we believe it is very likely that we'll get that knocked down by three point about 3.3 million um and then we'll have the remaining non-accrual that's the other half of that relationship and that is where the charge up was that was driven by an appraisal it's being marketed for sale we think it's at a reasonable level to be disposed but you know we'll see when the offers come through um with regard to the um large asset um that is over half lease now just over half least there are active lease proposals in place the borrower put a lot of money in as we've mentioned before to build out spec suites so that seems to be getting them some momentum so and the borrower's been supportive all along so again we believe that's on the upswing and is in good shape and over time as these leases convert from LOI into signed leases you know would be re-evaluating the classification on that and then was there another problem you had a question on yeah well just on that 20 and a half million lab is that still due in the fourth quarter is there any any movement on extending that let's see we did it we did two one-year extensions that went through 2026 as they put in the you know a very significant amount of equity to do that so i think if I'm reading it right, just to make sure this will be early 2026 when this comes back up.

Bill, I think it's the end of 2026.

Okay.

Yeah, I'm sorry.

I was reading that wrong. Sorry. I'm hitting you guys with a lot of detailed questions. And Bill, just to go back to the one that you took the charge-offs on, which loan was that? Was that the Class B office that was due this quarter okay gotcha and is that still i mean i had in my notes i was sitting around 70 vacant is that still the case or has that improved at all it's 50 and again thankfully through all these they continue to pay so they're they're still current but it's 50 occupied at this point so it's gotten better okay okay that's great i really really appreciate the details there. And then, Ned, just last question for you. With earnings clarity, dividend coverage clarity, et cetera, really, really starting to shine and the fact now that your stock is 20 plus percent lower than where you did the spot, how do you think about buybacks? How does the board think about buybacks?

Thanks. Yeah, it's certainly something we need to think about. And it goes to with best use of capital, we want to be careful about it, as I think you know, and Ron, you should talk about the current state of approvals. I mean, I know we let the approval...

Yeah, so we don't have a plan currently in place, Laurie, but it is something that we're re-looking at.

Okay, great, that's helpful. Thanks for taking my questions.

December, no more questions. Question Q, again, if you'd like to ask a question, It is star followed by one. If there are no more questions versus in queue, I'd like to pass the conference over to our hosting team for closing remarks.

Thank you all for joining us. We appreciate your time and your interest and look forward to talking again soon. Have a great day, everybody.

That will conclude today's conference call. Thank you for your participation and enjoy the rest of your day.