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. Today's call is being recorded. I'd like to turn the call over to Sharon Walsh, Senior Vice President and Director of Marketing and Corporate Communications. Miss Walsh, over to you.

Thank you, Lydia. Good morning and welcome to Washington Trust Bancorp Inc's conference call for the second quarter of 2025. 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, Phil 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 you to today's host, Washington Trust's Chairman and Chief Executive Officer, Ned Handy. Ned?

Thank you, Sharon. Good morning, and thank you for joining our second quarter conference call. We respect and appreciate your time and your 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. Washington Trust's second quarter results reflect our diversified business model performing positively. We realized growth in net interest income, wealth management revenue, and mortgage banking revenue, and we continued to build capital. This was a solid quarter with loan and deposit growth on target. This quarter, while we continued to focus on deposit generation, we enhanced our wealth management team with the addition of a new client services manager and business development additions to our wealth advisory and private clients teams. This added expertise will be instrumental as we continue to grow and evolve to meet the needs of our clients and communities and continue to provide the highly personalized consultative experience that has defined our firm for generations. Also in the quarter, we finalized the conversion of our core wealth management system, which will ensure enhanced customer experience. The company remains committed to providing exceptional full-service banking, mortgage, and wealth services to our customers and is focused on continuing to be a financial partner that provides solutions and resources that customers need for all life stages and the unique opportunities and challenges that come with those milestones. I'll now turn the call over to Ron for some additional details on the quarter. We'll then be glad to address any of your questions.

Thank you, Ned, and good morning, everyone. For the second quarter, we reported net income of $13.2 million, or $0.68 per share, compared to $12.2 million and $0.63 per share last quarter. As previously disclosed, there were two infrequent items included in first quarter results, a pension termination charge and a sale-leaseback net gain. Excluding these items, adjusted net income increased by $1.5 million, or $0.07 per share. Net interest income was $37.2 million, up by $763,000, or 2%, on a link quarter basis. The margin was $236,000, up by 7 basis points. Non-interest income totaled $17.1 million in Q2. Excluding Q1 sale leaseback net gain of $7 million, adjusted non-interest income was up by $1.4 million, or 9%. Wealth management revenues were $10.1 million, up by $229,000, or 2%, reflecting an increase in transaction-based and seasonal tax servicing fee income. Asset-based revenues were down modestly, reflecting a decline in average AUA balances. However, at the end of period, AUA balances totaled $7.2 billion, up by $363 million, or 5%. Mortgage banking revenues totaled $3 million, up by $730,000, or 32%. Our mortgage pipeline at June 30 was $102 million, up by $6 million, or 7% from the end of March. Loan-related derivative income, which is transactional in nature, totaled $676,000 in the second quarter, compared to $101,000 in Q1. Non-interest expense total $36.5 million in Q2, excluding Q1's pension plan settlement charge of $6.4 million. Adjusted non-interest expense was up by $770,000 or 2% on a link quarter basis. Salaries and benefits expense was up by $603,000 or 3%, largely due to volume-related increases in mortgage originator compensation. Income tax expense in the second quarter total $3.9 million and the effective tax rate was 22.7 our full year effective tax rate is expected to be 22.4 percent turning to the balance sheet total loans were up by 44 million or one percent total commercial loans increased by 57 million or two percent while residential loans decreased by one percent in market deposits were up by 30 million dollars or one percent from the end of the first quarter and by $407 million or 9% on a year-over-year basis. Worker deposits were down by $25 million and FHLB borrowings were up by $151 million. Our asset and credit quality metrics remain solid. Non-accruing loans were 51 basis points and past due loans were 27 basis points compared with total loans. The allowance totaled 41.1 million or 80 basis points on total loans and provided NPL coverage of 157%. and the second quarter provision for credit losses was $600,000. We had net charge of $647,000 in the second quarter. And at this time, I will turn the call back to Nick.

Thanks, Ron. And Lydia, we can open it up to 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. Our first question today comes from Mark Fitzgibbon with Piper Sandler. Please go ahead to your line, Jason.

Hey, Mark. First question, Ron, I had for you was sort of how you're thinking about the net interest margin and what you're assuming for Fed rate cuts in the back half of the year.

So for the third quarter, yeah, I would say you can see our margin starting to level out. So I think we're expecting a pretty modest expansion in the margin, maybe only a couple of basis points in the third quarter. We are seeing, you know, higher than previously rejected deposit costs. So kind of reaching the top on that. As far as the Fed, we're a lot less liability sensitive than we were last fall when the Fed was cutting. and I think we did a good job last fall of repricing our deposits down. We will aggressively reprice our deposits down as much as we feel we can without causing attrition if the Fed indeed will start to cut. But I don't think that we'll necessarily see as much impact as we did in the third and fourth quarter of last year.

Okay, great. And then it looked like you had pretty good mortgage origination this quarter, I think $181 million. I guess I was curious, how much of that was purchase versus refi? And also, you know, what was the mix between sort of hybrid arms and 30-year fixed?

Hi, Mark. This is Mary. We have about 75% of our origination related to the purchase market. it goes as high as 80 percent depending on the time frame. As far as the mix, predominantly the saleable is 30-year fixed. But we do do a some origination into portfolio that is a hybrid arm, mostly 7-1.

Okay, great. And then I guess, Ned, I'm curious with all the consolidation that we've seen up in Massachusetts recently, it would seem like kind of an opportune time to maybe open some branches up there or even consider a merger with a bank up in the mass market since you have so much of your loan portfolio up there and you're the mortgage business, the wealth business. I guess I'm curious, is that in the cards for you all or how are you thinking about sort of strategic expansion into Massachusetts?

Yeah, always on the list of possibilities. We think there's probably some talent opportunity. We've added a few people in wealth that have spent prior periods in their life in the Boston marketplace. We think, Mark, we've got locations in Rhode Island that we can build out where our brand is stronger before we jump into the Massachusetts market on the DeNovo branching side. um you know we'll see what comes out of of uh the various transactions that are going on um in terms of you know obviously one of one of those transit transactions has some rhode island presence um that that's going to be interesting to see what kind of what what opportunities come out of that um you know m&a you know our history nobody would uh accuse us of being overly acquisitive, but if the right transaction were to come up at the right price point and enabled us to grow reasonably, you know, we'd have to think about it. So, you know, I think we've got work to do.

What about the other way? There's some much bigger banks up in Massachusetts now that seem to be looking south. Could Washington Trust be a target for one of those banks at some point?

I suppose we could. That hasn't come to our attention yet. Obviously, Mark, our job is to try and maintain independence, and we know we have to earn that, and we know we've got work to do on the organic front to assure that. And that's where we're focused. And so we like our independence and we want to stay independent. We'd rather be an acquirer than acquired. But that's always, obviously, we have a fiduciary duty to respond to any kind of activity, but we haven't seen any yet.

Okay. And then lastly, and I hate to beat a dead horse here because I've asked about this in the past, but we've had, I think, 13 consecutive quarters of net outflows in the wealth management unit. Could you talk about maybe some of the things you're doing to try to stem that or change the direction?

Yeah, as I pointed out, we've added some talent, not hundreds of people, but a few people that are going to add to our client service capabilities and our sales capabilities in the private clients group we just finished the conversion of our wealth core system which i i know will will create a better customer experience going forward that's just being rolled out now um you know i i think we've talked about small m a activity uh in the primarily in the rhode island marketplace where our brand is strongest that continues to be in our um sort a strategic plan um so uh and and you know i think um there's a there's a little bit of marketing activity and and uh that we're embarking on but i i you know i think i think the combination of all those things there's no silver bullet mark it's a it's a hard business to grow organically we know that um you've you've made that point and and you're not wrong um that that in addition to market support. We need to see net growth. And so we're, you know, all I can tell you is that we're focused on that incrementally on a lot of fronts. Thank you.

Thanks, Mark.

Our next question comes from Damon Del Monte with KBW. Please go ahead.

Hey, good morning, everyone. Hope you're all doing well today. Thanks for taking my questions. I guess first morning, first question on loan growth. Good to see some positive movement here with, I think you had about 3% link quarter annualized for the whole portfolio, but you really got the majority of the growth on the commercial side, about 9%. Could you talk a little bit about kind of how your pipelines are looking today and kind of what your expectations are here for the back half of the year?

Yeah, thanks, Damon.

Yeah, we were happy with the growth and the pipeline continues to grow At quarter end, it was close to $145 million, which is not the highest it's been over the last, you know, five to ten years. But it's up substantially from the end of first quarter with pretty equal balance between C and I increase. So we're happy with the activity levels and, you know, continue to support kind of the low single-digit growth for the year. You know, the second quarter was obviously strong. Payoffs were down a little bit. We do have some projected payoffs still in the second half of the year. So I think we stay with the guidance that we've given, but happy with the growth in the quarter.

How would you characterize the sentiment of your borrowers, you know, today versus, call it 90 days ago, when there was a lot more uncertainty coming out of D.C.? Do you feel like people are believing in the economy and believing in their businesses and looking to take the next step forward with investing, or do you think there's still some skepticism out there?

Yeah, it's interesting. I've been looking at some of the larger regional bank reports, and I've seen a couple people comment on higher utilization of lines. We haven't necessarily seen that. We don't have a whole lot of lines of credit, but I think there's still a level of uncertainty. On the real estate side, I think projects are costing more and people are being all the more careful for it. I think investment in machinery and equipment is certainly not back to sort of the old days. But I think people are optimistic but careful, I would say. And I think we're – put us in the same category. We're optimistic about the opportunities. We're seeing some, you know, a little more construction opportunity, although that's slowed down a fair amount in our footprint. So, you know, I'd say it's a little better than lukewarm, but it's not quite warm yet. How's that?

That sounds good. Good characterization. um and then i guess on the on the fee income you know the swap gains were or the derivative income was was very strong this quarter um you know do you think that based on what you're seeing today like you could kind of repeat a level of this quarter or do you think it kind of goes back to a more normalized level after this quarter's result i would lean towards more normal i mean they're hard to predict right they're they're chunky in nature and uh you know we're working with our customers and making sure that they understand that the product is available to them ultimately.

It's whatever works best for the customers. But I think we're pushing that a little harder than we were, say, last year. So it's hard to know, Damon, exactly what will come in on that.

Got it. Okay. That's all that I have for now. Thank you very much.

Thanks, Damon.

Thank you. And just as a reminder to ask a question today, please press star follow by the number one on your telephone keypad. We have a question from Laurie Hunziker with Seaport Research Partners. Please go ahead.

Yeah. Hi. Thanks. Good morning.

Hi, Laurie.

Just sitting here with non-interesting time for a moment, the BOLI looked a little bit outsized. Was there anything one time in that?

No. Okay.

Okay.

And then just going back to Nim here, your wholesale broker, you know, down to almost zero, which is great, but obviously you had a sharp jump in your FHLBB. How do we think about that? And do you have a spot margin for us for the month of June?

Yeah. Well, I'll start with the spot margin, which was 238. And so, you know, wholesale funding, whether it's brokered or FHLB, is really just a balancing function on the rest of the balance sheet, probably carrying a little bit higher interest-bearing deposits at other banks just from a timing standpoint. So we will pay down that FHLB with excess cash as soon as those advances hit maturity. So there's no particular reason for it, Lori, other than that's just kind of what the balance sheet called for. Brokered CDs are way down because they're just not economical for us right now. We look at those as interchangeable with FHLB, just depending on price. And the CD market is just more expensive than fhlb so we're not doing it okay okay that's helpful and then um on expenses the the sale lease back that you did is that fully reflected from an extent standpoint this quarter or just remind me when that when that happened last quarter what was the timing yeah it happened in the first you know we did them in the first quarter and and so So I think the leases kicked in in February, so that's all in there, and it was in the guidance that I gave back in January.

Right, okay. So we had about a half a quarter expense last quarter, so fully in this quarter. Okay, great. And then, okay, and then any de novos planned for this year, next year? How do you think about that?

Middle of next year.

And how many are you looking at?

Right now it's one. Okay.

Okay, great. And then just going back over to loan growth, your multifamily growth was substantial this quarter, and even last quarter, too, but really this quarter. Can you just remind us, I don't think there's anything, but can you just remind us, do you have any New York City rent controlled exposure? Do you have that Hillary this is bill no we don't great okay and bill probably these next few questions are for you so just touching here um um on non-performers um can you go through that uptick that that cni non-performer that 9.4 million um any details on that loan timing specific reserves just how you're thinking about that um this is this is a potential 11 million dollar exposure to a broadband an infrastructure contractor what happened was during the quarter their largest customer backed

out of a major contract they had to file for chapter 11 due to cash flow and we're part of a bank syndicate pushing for expeditious resolution we have we think appropriate specific reserves we expect this will be at least partially resolved um this year before the end of the year okay and sorry how much in reserves do you have on this specific loan we have the appropriate amount Okay. I'm sorry to be – it's – yeah.

I get that. Now, obviously, you're the Class C office now performing the $3.3 million you all said would resolve, resolve, which is great. Are there any details you can share just generally with respect to that resolution?

And then I know you had another credit that was part of that same relationship, the $4.3 million which i think is the only free non-performer that you have can you update us on the vacancy and the timing of that and you know one as you noted one was sold that actually was prompted by 10 31 so we were pleased to see that go at a you know a loss but not not a reasonable loss um and then on the remaining non-performers 50 vacant they are paying they are trying they are seeing some leasing activity, but we're not seeing, to be blunt, a lot of positive momentum there. So that one we're still, you know, watching carefully, trying to push for expeditious resolution if we can.

And that is likely going to be resolved in, what do you think, in the next couple quarters? Or how do you think about that?

You know, that would be our hope.

But right now they're paying um they're supporting the property um and you know we're it's the office market doesn't have demand that's really easily to estimate so we're pushing all things that we can looking for potential owner occupancy type sales maybe other 1031s so i couldn't give you a timeline on that other than that we will resolve it as soon as is appropriate okay okay Okay.

And then just to remind us, I know you took a charge off last quarter. What's the reserves on that specific loan?

That loan's been appropriately reduced, you know, via charge off to the right carry value based on accounting rules. So I don't want to get any more specific than that if I can avoid it okay okay all right and the 21 and a half million the new construction that's that's part of you know part of the snack that the lab the 21 and a half like do you have any updates on that yes that's gone from 50 to 62 at least and if we things keep moving it's on track for 70 if we for there's an LOI out for that we hope um so good momentum on that project still classified where it is, but, you know, we think it's got some traction. Okay.

Okay. Great. Thank you so much. I know I asked a lot of questions on credit here. Your credit's really good, but just wanted some details. And I guess, Ned, just very high level back to you. Your capital levels are strong, you know, but your stock is still sitting here 15% below your cap rates. Can you talk a little bit about how you're thinking about buyback consideration?

Yeah, Laura, you know, um we we have the approval in place and and uh ron we we we dipped our toe in the water for a day um but laurie we really decided that capital preservation and growth is is a more prudent thing for us right at the at the moment and you know it's something we keep our eyes on ron i don't know if you have a yeah laurie listen it's it's tempting and i can certainly make an argument.

And as Ned said, we actually did initiate for a single day and then decided that we're more focused on operations and just kind of, our capital's fine. And we think we'd like to have a little bit more. So that's kind of where we are at the moment.

Okay. And how many shares did you buy back in the quarter?

I think it was 10,000.

Okay, great. Thanks for taking my questions.

Thanks, Laurie.

Thank you. We have no further questions, so I'll pass you back over to Ned Handy for any closing comments.

Great. Thanks, Lydia, and thanks, everybody. I hope we've presented a clear picture of the current state and our focus going forward. And as we near our company's 225th birthday next month, we want to say thank you to our customers for entrusting us as their partner along their journeys, to our employees, past and present, for bringing their expertise and heart to every customer interaction, and to our shareholders for continuing to support our vision and investing in community banking in general. We certainly appreciate your time today and look forward to speaking to you all again soon. Thanks, everybody. Have a great day.

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