Earnings Call Transcript
WASHINGTON TRUST BANCORP INC (WASH)
Earnings Call Transcript - WASH Q1 2022
Operator, Operator
Good morning, and welcome to Washington Trust Bancorp, Incorporated's Conference Call. My name is Bailey, and I will be your operator for today. Today's call is being recorded. And now I will turn the call over to Elizabeth B. Eckel, Senior Vice President, Chief Marketing and Corporate Communications Officer. Ms. Eckel, please go ahead.
Elizabeth B. Eckel, Senior Vice President, Chief Marketing and Corporate Communications Officer
Thank you, Bailey. Good morning, and welcome to Washington Trust Bancorp, Inc.'s 2022 first quarter conference call. Joining us for today's call are members of Washington Trust's executive team, Ned Handy, Chairman and Chief Executive Officer; Mark Gim, President and Chief Operating Officer; Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer; and Bill Ray, Senior Executive Vice President and Chief Risk Officer. Today's presentation may contain forward-looking statements, and actual results could differ materially from what is discussed on today's call. Our complete Safe Harbor statement is contained in our earnings press release, which was issued earlier this morning and other documents that are filed with the SEC. 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 CEO, Ned Handy.
Ned Handy, Chairman and Chief Executive Officer
Thank you, Beth. Good morning, all, and thank you for joining our first quarter call. We are grateful for your time and continued interest in Washington Trust. This morning, I will provide an overview of our first quarter highlights, and then Ron Ohsberg will review our financial performance. After our remarks, Mark Gim and Bill Ray will join us and will answer any questions you may have about the quarter. I’m pleased to report that Washington Trust posted solid first quarter results with net income of $16.5 million or $0.94 per diluted share compared with $20.2 million or $1.15 per diluted share in the prior quarter. In the quarter, strength in core margin and our wealth business helped to offset a reduction in mortgage revenues. Continued expense management assisted in the sound results, and Ron will provide detail in his comments. I’m very proud of the way our teams have navigated through the pandemic, keeping customers at the forefront while positioning the pillars of our business model, margin, wealth and mortgage for relative strength as the Fed begins to implement anti-inflation measures. Our asset-sensitive positioning will drive continued margin improvement and our investments in technology and process improvement in all of our business units will optimize productivity in what will be a challenging operating environment. In the quarter, we hit a record high in wealth management revenues, although assets under management declined at quarter end due to market volatility. Net new customer flows were strong in the quarter. Our rebranding in wealth to the unified Washington Trust Wealth Management brand is helping to build awareness in Connecticut and Massachusetts and promises to deliver a simplified comprehensive offering across our footprint. We’ve invested in continuous improvement in our financial planning capabilities, reflecting our deep long-term care for our customers and their families. Our efforts have been well received by clients, prospects and centers of influence. Total end market deposits hit a high of $4.7 billion at quarter end and enabled us to continue reducing wholesale funding. Given our strong brand positioning, we continue to explore branching opportunities in Rhode Island. Construction of our new branch in Cumberland, Rhode Island, is progressing, and we expect an opening in late summer. First quarter mortgage revenues and volume were down as expected, but both weekly applications and pipeline remain above pre-pandemic levels. We are built to service a purchase-oriented market and the New England markets we serve remain relatively strong. Total loans, excluding PPP loans, were up 1% in the quarter and 8% year-over-year. Our commercial lending business was impacted by early payoffs as customers continue to take advantage of high valuations and the seller's market. Commercial loans, net of PPP, declined by $12 million in the quarter as new originations and advances of $110 million were more than offset by payoffs and paydowns of $122 million. The commercial pipeline remains strong entering the second quarter of 2022. Robust growth in residential mortgage loans helped to offset the commercial decline. Once again, this quarter, we are well served by the diversity of our business lines and revenue sources. Credit has remained very strong, and Ron will provide some detail on both our credit statistics and some comments on our provisioning and reserve positioning. We’ve maintained a conservative posture on credit risk, which has served us well through the pandemic and prior cycles. We feel confident about how Washington Trust and our customers have managed through the pandemic. And while there have been some positive signs of economic growth, we recognize there are many variables at play locally and globally. We are planning for and continuously analyze the potential impact of several interest rate adjustments in the near-term. We remain cautiously optimistic about the underlying economic fundamentals of low unemployment, strong corporate earnings and robust consumer strength. We believe that active engagement with the fintech ecosystem is an important method of understanding the competitive landscape. We are continuously updating our products, improving our processes and working with our core providers and other fintech partners to ensure we are providing the best experiences and solutions for our customers and our employees. We issued our inaugural ESG report in the quarter highlighting our long-held belief that we are well-positioned to help our entire communities find opportunities for success and to be a positive contributor to environmental health and to operate with the highest level of integrity, security, and ethics. We are proud of our 221-year heritage and have a deep awareness of today's important opportunities and obligations. We launched a new multiyear financial literacy initiative in the quarter, designed to provide individuals, families, businesses and nonprofit organizations with the money management tools and resources they need to achieve economic empowerment. We’ve committed multiyear funding to support literacy programs at three local nonprofits and introduced a free web-based financial literacy program for local schools and community groups. We also added a new financial wellness center on the company's website. I want to once again thank our employees for their strength of character and their consistent care and concern for each other and our customers. With that, I will turn the call over to Ron for comments on the first quarter financial results. Ron?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Thank you, Ned. Good morning, everyone, and thank you for joining us on our call today. As Ned mentioned, net income was $16.5 million or $0.94 per diluted share for the first quarter, down from $20.2 million or $1.15 per diluted share for the fourth quarter. Net interest income was $35.1 million, a decrease of $2.6 million or 7% from the prior quarter. The net interest margin was 2.57%, a decline of 14 basis points. Net interest income continued to benefit from PPP forgiveness fee income, totaling $819,000, which contributed 6 basis points to the margin compared to $1.2 million and 9 basis points in the fourth quarter. Additionally, there were $2.2 million in commercial loan prepayment fees in the fourth quarter, contributing 16 basis points to the margin, while the current quarter saw only a $76,000 prepayment fee with no impact. Excluding these items, the margin increased by 5 basis points from 2.46% to 2.51%. Average earning assets increased by $7 million, with a yield on earning assets of 2.83% for the first quarter, down by 14 basis points. On a core basis, the yield was 2.76%, up by 4 basis points from 2.72% in Q4. On the funding side, average in-market deposits rose by $216 million, while wholesale funding sources decreased by $176 million, and the rate on interest-bearing liabilities fell by 1 basis point to 0.33%. Noninterest income represented 33% of total revenues in the first quarter, amounting to $17.2 million, down by $3.1 million or 16%. Wealth management revenues were $10.5 million, an increase of $27,000, reflecting an uptick in transaction-based revenues due to seasonal tax reporting and preparation fees concentrated in the first half of the year. This was partially offset by a decrease in asset-based revenues, which fell by $206,000 or 2%, correlating with a decline in the average balance of assets under administration, down by $83 million or 1%. As of March 31, assets under administration totaled $7.5 billion, a decrease of $291 million or 4% from December 31, largely due to market depreciation. New business activity in the first quarter was robust, with net client asset inflows totaling $97 million. Our mortgage banking revenues amounted to $3.5 million in the first quarter, a decline of $831,000 or 19%. Realized gains on sales of loans were $3.3 million, down by $2.4 million or 42% from the prior quarter, attributed to lower sales volume and a reduced sales yield. Mortgage loans sold totaled $130 million in the first quarter, down by $67 million or 34%. Market competition has also been compressing the sales yield as expected. The decline in realized gains was partially offset by changes in the fair value on mortgage loans held for sale and forward loan commitments. Mortgage loan originations totaled $271 million in the first quarter, a decrease of $92 million or 25%. Our mortgage origination pipeline at March 31 was $210 million, up by $16 million or 8% from $194 million at the end of December, and as of last week, the pipeline exceeded $240 million. Loan-related derivative income was $301,000, a decline of $1.7 million from the preceding quarter due to lower commercial swap volume, and income from bank-owned life insurance totaled $601,000, down by $543,000 from the prior quarter as a result of recognizing $526,000 of life insurance proceeds in the fourth quarter. Regarding noninterest expenses, these decreased by $4 million or 11% from the fourth quarter. In the fourth quarter of 2021, we incurred $2.7 million in debt prepayment penalties to pay off higher-cost FHLB advances, whereas no such expenses were incurred in the first quarter of 2022. Excluding the impact of these penalties, noninterest expense was down by $1.3 million or 4% from the fourth quarter. Salaries and employee benefits expenses fell by $522,000 or 2% in the first quarter, reflecting volume-related declines in mortgage originator compensation expenses and lower performance-based compensation accruals, partially offset by higher payroll taxes due to the new calendar year. Outsourced services expenses decreased by $343,000 from the prior quarter, largely due to lower swap volume. Income tax expense totaled $4.4 million for the first quarter, with an effective tax rate of 21.3%. We expect our full-year 2022 effective tax rate to be approximately 21.5%. Now turning to the balance sheet, total loans were up by $11 million from December 31 and increased by $89 million or 2% from a year ago. Excluding PPP, loans rose by 0.9% from Q4 and 7.7% compared to Q1 2021. In the first quarter, total commercial loans decreased by $37 million or 2%, which included a net reduction in PPP loans of $25 million. Excluding PPP, commercial loans fell by $12 million or 1% from December 31, with CRE loans specifically declining by $11 million. Payoffs and paydowns of $100 million were partially offset by new loan originations and advances of $89 million. C&I loans, not including PPP, decreased by $1 million as payoffs and paydowns of $22 million were offset by new volume in the quarter. Residential loans increased by $51 million or 3% and by $320 million or 22% year-over-year. Investment securities decreased by $35 million or 3% from December 31, due to a temporary decline in fair value and routine paydowns on mortgage-backed securities, partially offset by purchases. End-market deposits rose by $261 million or 6% from December 31, concentrated in money market accounts, and increased by $713 million or 18% year-over-year. Wholesale brokered CDs decreased by $113 million in the first quarter. FHLB borrowings were down by $90 million from December 31, reflecting lower levels of wholesale funding needed given the increase in end-market deposits. Total shareholders' equity was $513 million at March 31, down by $52 million from the end of Q4, reflecting a $60 million decrease in accumulated other comprehensive income largely due to a temporary decline in the fair value of available-for-sale securities. Washington Trust remains well capitalized. Our first-quarter dividend declaration of $0.54 per share was paid on April 8. Regarding asset quality, nonperforming assets decreased by $1.6 million in the first quarter. Non-accruing loans were 0.29% of total loans compared to 0.33% at the end of Q4. Past due loans were 0.16% of total loans compared to 0.24%. As of March 31, there were no code deferrals. The allowance for credit losses on loans totaled $39.2 million or 0.92% of total loans, providing NPL coverage of 312%, compared to $39.1 million or 0.91% in Q4. The first quarter provision for credit losses was a positive $100,000, contrasting with a $2.8 million negative provision recognized in the previous quarter. The first quarter provision related to an increase in the reserve for funded commitments, with no provision for loans recognized in the first quarter due to continued low loss rates and strong asset and credit quality metrics, as well as our current estimate of forecasted economic conditions. Net recoveries were $148,000 in Q1 compared to net recoveries of $27,000 in Q4. This concludes my prepared remarks, and I will now turn the call back to Ned.
Ned Handy, Chairman and Chief Executive Officer
Thanks, Ron. The road ahead is going to be challenging, and we appreciate you taking the time to listen to our story and understand our positioning. We had a good quarter. Our balance sheet, capital position and credit quality remains strong, and we believe our diversified business model positions us well in a rising rate environment. So, with that, we will open it up to questions.
Operator, Operator
Our first question today comes from Mark Fitzgibbon from Piper Sandler. Mark, please go ahead. Your line is now open.
Mark Fitzgibbon, Analyst
Hey, guys. Good morning.
Ned Handy, Chairman and Chief Executive Officer
Good morning, Mark.
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Hey, Mark.
Mark Fitzgibbon, Analyst
Ron, just to clarify one of the comments you made, did you say the commercial loan pipeline was $240 million?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
No, the residential pipeline.
Mark Fitzgibbon, Analyst
I thought you had said the residential pipeline was $210 million.
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
As of March 31, and as of last year … it's up to $240 million.
Mark Fitzgibbon, Analyst
Got you.
Ned Handy, Chairman and Chief Executive Officer
Mark, I will just tell you the commercial pipeline is at about $270 million.
Mark Fitzgibbon, Analyst
$270 million. Okay, great. That's up like $100 million from last quarter, right?
Ned Handy, Chairman and Chief Executive Officer
Yes. Things are very strong right now in terms of inflow of opportunities.
Mark Fitzgibbon, Analyst
Okay. Secondly, assuming the Fed rate hikes follow what the forward curve is suggesting, what do you think the core net interest margin can get up to by the end of this year, Ron?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes, we weren't planning to project that far, but hypothetically, we believe that the recurring margin could reach the 270s by the end of the fourth quarter. Mark, that's entirely dependent on actual outcomes, so we recognize that this is a significant assumption.
Mark Fitzgibbon, Analyst
Okay. And then also, I was curious, the securities book is about 17% of the balance sheet today. Where would you like that to be over time? Is it likely to get a lot smaller as loan growth picks up?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
I think it's probably a little bit on the light side of where we normally are. I think we are usually between 17% and 20%, Mark. We are not looking necessarily to take that down. We look at it quarter-by-quarter. And if we have excess capital to deploy, sometimes we will just top up the investment portfolio.
Mark Gim, President and Chief Operating Officer
Yes. And Mark, this is Mark Gim. I think part of that depends on the strength of total loan outstanding growth. Credit formation has been strong. As Ned mentioned, the net growth is what's important to us. And interest rates have risen to the point that securities purchases, if funded by low-cost deposits, are a relatively more attractive source of earnings than they were before the yield curve flattened to the levels where it is today. So, if we could fund loan growth with deposits and liquidity is not excessive, then securities balances probably would not grow. We have the opportunity to continue growing deposits and loan growth is not a strong securities purchases are a way of providing net interest income at reasonable spreads going into 2023, more so than it has been for the last couple of years.
Mark Fitzgibbon, Analyst
Okay. And then lastly, just a couple of questions around the Wealth Management business. You had really good client flows this quarter, I think, 97 million. I guess I was curious where that’s coming from? Any particular type of client? Is it new or existing clients? And what would you guess the average size of the new relationships that you're bringing in look like? Thank you.
Mark Gim, President and Chief Operating Officer
So, Mark, this is Mark again. A large portion of those inflows in the first quarter were driven by a significant relationship that was brought in by a combination of the private client group, proceeds from a business sale, along with the Wealth Management division as well. Those kinds of opportunities don’t come along all the time, we are happy to be able to take advantage of our service levels to be able to accommodate what we can. More typically, our relationships are between the $2 million and $10 million range as they come in. But one of the advantages of having a better linkage between the balance sheet side of the bank and the wealth side is that, for example, business succession planning opportunities or a business sale if we are banking a commercial customer, we are now able to be in a position to take advantage of that when the liquidity event occurs. And that pipeline may be a long time, multiple years, but if we service the client effectively on the credit side, we are naturally in a good position to be able to offer our wealth services as well.
Mark Fitzgibbon, Analyst
Thank you.
Ned Handy, Chairman and Chief Executive Officer
Okay. And Mark, just to supplement on your question on margin, I also just want to put out here that we are expecting the second-quarter margin on a core basis to be more like the mid-250s. So obviously more confident in that guidance and then further out.
Operator, Operator
Thank you, Mark. The next question today comes from Erik Zwick from Boenning & Scattergood. Erik, please go ahead. Your line is now open.
Erik Zwick, Analyst
Good morning, everyone.
Ned Handy, Chairman and Chief Executive Officer
Good morning, Erik.
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Hi, Erik.
Erik Zwick, Analyst
Wanted to first follow-up with kind of the margin discussion there. Ron, within those kind of expectations that you’ve provided, can you remind us what you're assuming for deposit betas over the next few quarters?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes, we believe that deposit betas this time will be somewhat lower than during the previous rate increase cycle. We have significantly reduced our wholesale funding levels, although we still have higher levels compared to our peers. Some of the deposit growth we achieved this quarter is variable. We have approximately $2 billion in loans that will reprice in the next 12 months, with $1.7 billion repricing in the first month and about $400 million of liabilities repricing in one month, and around $1 billion over the course of 12 months. Therefore, we still have considerable asset sensitivity in place. Our core rates are unlikely to change much, but we do have some variable funding that will increase. Overall, we will benefit from the rate increases.
Erik Zwick, Analyst
Thanks for the color there. And then thinking about the commercial loans and I appreciate the commentary on the pipeline being up quarter-over-quarter. Curious where your line utilization rates stand today relative to kind of what you consider normal from a historical perspective? And if you are starting to see any upticks there, it seems like that could potentially be a headwind to net growth going forward as well. So, kind of curious what you're seeing there.
Ned Handy, Chairman and Chief Executive Officer
Yes, Erik, it's Ned. We don't have a large number of lines in the commercial book, but we haven't observed much change in utilization yet. The main factors for us are real estate closings and fundings, along with a significant amount of construction. In the first quarter, we closed another $27 million in construction loans that haven't funded yet, indicating potential future funding. So far in the first half of April, we closed $55 million in loans, though not all are funded. This pace suggests that our pipeline is converting well, which makes me optimistic about loan growth in Q2. Another significant factor is payoffs. As rates increase, we anticipate that payoffs will eventually slow down. We didn't see that in the first quarter. We have scheduled as many payoffs as possible and expect a reduction in the second quarter, but it's difficult to predict. There's still activity at low cap rates as people take advantage of current opportunities, so that's a factor we need to monitor closely.
Erik Zwick, Analyst
And then transitioning over to the mortgage, kind of residential mortgage loan pipeline, I think you said those balances were up quarter-over-quarter. And just curious kind of maybe what drove that increase? Is it starting to move into kind of the beginning of the prime home selling season or anything else, just given kind of market dynamics, it seems like those continue to come down, but curious what you guys are seeing?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes. So, I think there is some seasonality built in there, Erik. So, our pipeline, as I mentioned, is higher at the end of the quarter versus last quarter and then even into April, it's continuing to increase. In terms of our kind of our mortgage expectations, I can't really go out further than the second quarter, but we would expect Q2 to be somewhat better than Q1, just on the basis of that pipeline. A lot of competition out there. The purchase market where we are is very strong, that there's a lot of demand probably constrained somewhat by supply, but the market is still very, very hot in terms of customer demand.
Mark Gim, President and Chief Operating Officer
Yes. The purchase market is typically seasonal, but we believe the strength in Q1 reflects the demand and low inventory in New England. Our Head of Mortgage mentioned that it seemed like the spring market began in early January, which is a bit early for purchase activity. We are cautious about making long-term predictions given the sensitive outlook of the mortgage business overall. However, the main factors in New England are the lack of inventory and interest rate levels, and demand remains strong across all the markets we serve. While higher rates will have some effect, the significant housing price appreciation from the past couple of years may stabilize. Coupled with the inventory shortage, this should keep purchase demand robust in the foreseeable future. For us, the purchase market tends to be more focused on our portfolio rather than sales, which should contribute to our balance sheet growth. As mentioned earlier, the purchase market serves us well. We are not solely focused on the refinance market; we can generate high-quality, sustainable growth in an attractive, well-collateralized asset class. This should support loan growth in the near future.
Erik Zwick, Analyst
That’s helpful. I appreciate the detailed commentary there. And just one last one for me. I know I think, Ned, you mentioned in the opening commentary, you’ve got a new branch in Cumberland opening late summer. And I know you guys are always kind of on the lookout for new markets and feel there's some opportunity to gain deposits, some long-term kind of core deposit funding that way. Any new branches targeted for the second half of the year or nothing yet at this point?
Ned Handy, Chairman and Chief Executive Officer
I don't expect anything to be delivered in 2022, but we are working on another site that is currently in the approval process. If you could provide me with an estimate for how long zoning approval will take, I can give you a more precise answer, but we anticipate that this will likely be in the first quarter of 2023. We are also exploring a few other sites, but we haven't finalized any agreements yet.
Erik Zwick, Analyst
Got it. I understand the challenge of some of those approvals sometimes. So that's great. Thanks for taking my questions today.
Ned Handy, Chairman and Chief Executive Officer
Thanks, Erik.
Operator, Operator
Thank you, Erik. The next question today comes from Damon DelMonte from KBW. Damon, please go ahead. Your line is now open.
Damon DelMonte, Analyst
Hey, good morning, guys. Hope everybody is doing well today.
Ned Handy, Chairman and Chief Executive Officer
Good morning, Damon.
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Hey, Damon.
Damon DelMonte, Analyst
So, my first question is about the loan growth. The strong traction you're seeing on the commercial side indicates the pipeline activity. Ned, could you provide some details on where in the footprint you are observing this and what these types of loans look like in terms of size and industry?
Ned Handy, Chairman and Chief Executive Officer
Yes, I don’t believe the average loan size has changed significantly. Generally, we are in the $5 million to $15 million range. We've observed increased activity in Connecticut due to our focused efforts on commercial and industrial lending along with marketing support there, leading to some growth in that area. This growth includes a mix of manufacturing, distribution, and a bit more in senior housing and memory care. We're noticing more activity in commercial real estate within Connecticut and the Greater Boston area compared to Rhode Island, although there's some activity in North Island as well. In terms of multifamily construction, we are seeing substantial activity in the industrial sector with strong opportunities. We are, understandably, cautious about the office and retail sectors and are avoiding significant speculative risk. Overall, we are observing numerous construction opportunities, including new multifamily projects, conversion construction for industrial use, and renovations.
Damon DelMonte, Analyst
Yes. That’s great color. Thank you. And then kind of switching over to fee income. Swap gains were down pretty notably quarter-over-quarter. Ron, how do you kind of think about that line item as we go through the rest of this year?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes. I mean it's kind of chunky and hard to predict, but we typically are somewhere in the $3 million to $4 million a year range at the end of the year. So, kind of hard to know exactly what quarter that lands, but that’s where we've been, and that’s kind of what we expect will continue to happen.
Damon DelMonte, Analyst
Okay, great. That’s helpful. Thanks. And then I guess just lastly on the expense side. Obviously, some variable components with mortgage banking in the swap business. But as you kind of look out over the upcoming quarters, do you have a targeted range for expense level that we could kind of consider here?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes. I mean I think the guidance I gave back in January is we are thinking 5-ish that doesn’t necessarily factor in the variable stuff. But yes, we are seeing some expense pressure as I think everyone is, but there's nothing unusual happening within our expense base that we would need to call out to you. And we had the branch coming online later in the year. That’s about it.
Damon DelMonte, Analyst
So, are you saying that we can expect around 5% growth for the year?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes, call it 5%.
Damon DelMonte, Analyst
5%, okay. Okay. That’s all that I had. Thanks a lot, guys. Appreciate it.
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Thanks, Damon.
Ned Handy, Chairman and Chief Executive Officer
Okay. Thank you.
Operator, Operator
Thank you, Damon. The next question today comes from Laurie Hunsicker from Compass Point. Laurie, Please go ahead. Your line is now open.
Laurie Hunsicker, Analyst
Yes, hi. Thanks. Good morning.
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Good morning, Laurie.
Laurie Hunsicker, Analyst
Just going back to Damon's question on expenses, I want to confirm that I understood correctly. So, is the 5% base you are referring to based on last year's figure of $135.5 million, or are there other adjustments you are considering?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
No, with no other adjustments.
Laurie Hunsicker, Analyst
Got it. Okay. Even though mortgage banking may decrease slightly and there will be expense savings, some of that expense growth is obviously related to the new branch. What other areas are you concentrating on for spending? Is that just a larger figure?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
It's just kind of across the board with the salaries and supplies and outsourced services expense, just reflecting inflation.
Mark Gim, President and Chief Operating Officer
Yes, Laurie, this is Mark. We are observing wage pressure across various sectors, not just in banking. This is resulting in increased costs in salaries and wages. In the mortgage banking sector, accounting can produce some unusual situations where commissions are recorded as expenses when a loan is sold, but deferred labor costs and commissions can offset expenses if you originate portfolio loans. As we consider core expenses, some of these elements can vary over time. If your entire portfolio origination relies on the balance sheet, the deferred items may shift to offset expenses. However, we focus on core expense trends over time based on our expenditures for salaries, wages, outsourced services, and others. It's important to note that 2022 will mark the first complete year of operation for the branch we opened in May 2021. So, relatively, you can see there’s one branch that opened this year, which means there will be 12 months of expenses for the branch opened last year compared to about 7 months of expenses from last year, contributing to the increased growth rate.
Laurie Hunsicker, Analyst
Got it. Perfect. That’s helpful. And then just switching over to noninterest income. Appreciate the color, obviously, around mortgage banking and swap. But can you talk a little bit about where you stand on NSF and overdraft fees? Maybe how much was in the quarter, how you're thinking about that in terms of potentially being more consumer-friendly going forward and how that may impact the income?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes. Yes. So, our overdraft NSF is really not that material. It was under $2 million in 2021. So, we are reviewing our policies around that. We are well aware of the regulatory stance with regard to overdrafts. We will do the right thing for our customers, we will likely implement changes that will be directionally consistent with what our peers are doing. So that has not happened yet. You don’t see that reflected in our numbers for the first quarter. That’s something that will be implemented probably over the course of the year, sometime by the end of the year, so.
Mark Gim, President and Chief Operating Officer
Yes, Laurie, this is Mark. I think what Ron has said is right on with likely that the second half of 2022 is when we would feel any impact from that roughly $2 million being less than by changes. Probably, those would have effect mostly on the consumer side rather than the business side. So, the whole universe of NSF OD fees isn't necessarily going to change as much. That said, we do think that this source of fees will be under sort of secular long-term pressure, and we are glad it's not a very material contribution to our fee income source. We will continue to do the right thing for the customer to make sure that programs we put in place a match client needs in the competitive market. So, 2023 would be the first full year of those changes taking full hold.
Laurie Hunsicker, Analyst
Got it. Great. That’s helpful. And then just lastly, going back up to net interest income margin. Just on your PPP fees, obviously, you booked $819,000 this quarter. How much is remaining? Is that around $500,000? Or do you have a better figure there?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes, I do. It is $425,000.
Laurie Hunsicker, Analyst
$425,000. Okay, great. And just to sort of quantify, I was doing some back-end math as you were talking to Mark earlier. It's looking like basically every 25 basis points or so of hike we are getting round numbers 3, 3.5 basis points on margin. Does that sound right? Or did I do my math wrong?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes, Laurie, we examined it from a dollar perspective rather than a basis point perspective. We've estimated that every 25 basis points equates to about $1 million in annualized net interest income.
Laurie Hunsicker, Analyst
Annualized, right. That's helpful. Okay, great. And then just lastly on credit as we are starting to see normalized loan loss provisions, your reserves to loans obviously sitting here at 92 basis points. Where is the comfort level there? How should we be thinking about that?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes, we are comfortable with what we just published. The provision for loan growth is dependent on the economic outlook and historical loss rates. We expect mid-single-digit loan growth for the year and anticipate stability in our credit if there is no COVID relapse or unforeseen economic shock. We are closely monitoring events in Ukraine and China and their impact on supply chains, as well as inflation and the Federal Reserve's policy response and how these factors may affect asset quality. Additionally, we are still holding some COVID-related qualitative reserves, and the release of these would help offset any additional reserve requirements. Overall, we are content with our position at the end of March, but we are seeking more clarity on the discussed factors. For now, things are steady. Our asset quality is solid, and we are comfortable with our current reserves.
Laurie Hunsicker, Analyst
Great. Thanks for taking my questions.
Ned Handy, Chairman and Chief Executive Officer
Bill, I don’t know if you have any additional insights to share with Laurie on that.
William Wray Sr., Senior Executive Vice President and Chief Risk Officer
I would simply confirm that Ron and I are completely aligned in terms of our outlook on that.
Ned Handy, Chairman and Chief Executive Officer
Well said. Thanks, Laurie.
Operator, Operator
Thank you, Laurie. Next question today is a follow-up question from Damon DelMonte from KBW. Damon, please go ahead.
Damon DelMonte, Analyst
Hey, thanks for taking my follow-up. I just wanted to clarify the commentary on expenses. So, the 5% growth is off of a base from last year on the reported, which was like $135.5 million or like kind of the operating when you take out the FHLB and some other charges, which was closer to like $128.5 million?
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes. Thank you, Damon. Yes, obviously, we had high levels of prepayment expense in 2021, that would come out.
Damon DelMonte, Analyst
Okay. All right. So, it's off the adjusted level then. Okay, perfect.
Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer
Yes.
Ned Handy, Chairman and Chief Executive Officer
Okay. Thank you.
Operator, Operator
That concludes the Washington Trust Bancorp, Incorporated's conference call. Thank you for your participation. You may now disconnect your line.