Washington Trust Bancorp, Inc.

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 queue. As a reminder, today's call is being recorded. And now I'll turn the call over to Sharon Walsh, Senior Vice President, Director of Marketing and Corporate Communications. Please go ahead.

Thank you, Lydia. Good morning and welcome to Washington Trust Bancorp, Inc.' 's conference call for the fourth 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 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, 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.

Thanks, 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 begin with a brief overview of our results and then Ron will provide more detail on our financial results for the quarter and the year. After our remarks, Mary and Bill will join us for the Q&A session. This quarter's results reflected continued earnings momentum and improving profitability. The quarter's performance was driven by margin expansion, continued in-market deposit growth, and increased revenues from wealth management. We closed out the year with a wealth position balance sheet, a normalized provision for credit losses, and improved asset quality metrics. During 2025, we laid important groundwork for future growth with targeted investments in our wealth management and commercial banking business lines. This included the wealth asset purchase from Lighthouse Financial Management and the hiring of our new Chief Commercial Banking Officer, Jim Brown, who has an extensive network and proven record in leading high-performing commercial banking teams. In this new year, we are continuing to build upon the positive momentum from these strategic investments. Last week, we brought on a dedicated institutional banking team to serve education, healthcare, and nonprofit providers throughout the Northeast region. This investment in our commercial banking business will help improve our balance sheet with high quality C&I loans and strong deposit opportunities. We also expect to see wealth management opportunities come about. The ability to scale this high quality new client base with an efficient staffing model will enhance earnings going forward. We're very excited about this key addition to Jim's commercial team and the growth potential that lies ahead. We're also looking forward to our de novo branch opening later this year in one of Rhode Island's fastest growing communities, the city of Pawtucket, which will increase our presence in the northern part of the state. All these efforts will enhance our value as a full service community bank and long term partner to our customers. and provide a solid foundation for the year ahead. With that, I'll turn the call over to Ron for some additional details on the quarter and the year. We'll then be glad to address any of your questions.

Ron? Thank you, Ned, and good morning, everyone. In the fourth quarter, we reported net income of $16 million, or $0.83 per share, compared to $10.8 million, or $0.56 per share, for the preceding quarter. On an adjusted basis, EPS was up 41% compared to last year's fourth quarter. That interest income was 40.7 million, up by 5% from Q3, and 24% year-over-year. The margin was 256, up by 16 basis points, and up by 61 basis points year-over-year. A better funding mix with higher in-market deposits and lower wholesale funding, as well as deposit rate management, contributed to this improvement. Q4 included $516,000 of loan prepayment fee income, which benefited the NEM by three basis points. Non-interest income was up 5% compared to Q3 and up by 15% year-over-year on an adjusted basis. Wealth management revenues were up 5% and average AUA for the fourth quarter increased by 4% and 9% year-over-year. Mortgage banking revenues totaled $3.3 million, down seasonally by 7% and up 14% year-over-year. Origination and sales volumes increased by 21% and 25% respectively. Our mortgage pipeline at December 31st was $81 million, down seasonally by 37% from the end of September. Full-year mortgage originations totaled $667 million, up by 31% from 2024. Q4 loan-related derivative income was up by $810,000 in the quarter. Non-interest expense totaled $38 million in Q4, up by 6%. On a full year adjusted basis, non-interest expense was up by 7%. In the fourth quarter, salaries and benefits expense was up by $973,000 or 4%, reflecting higher levels of performance and volume-based compensation, as well as increased staffing. Other non-interest expenses were up by $1.3 million in Q4, largely due to a $1 million contribution made to our charitable foundation. Our full year effective tax rate was 22.5%. We expect our full year 2026 rate to be approximately 22%. Turning to the balance sheet, total loans were stable, increasing modestly by 12 million from September 30th. And market deposits were up by 1% from the end of Q3 and 9% year over year. And wholesale funding was down 165 million or 21% from the end of September. Total equity amounted to $544 million, up by $11 million from the end of Q3. The dividend remained at $0.56 per share. Turning to credit, in the fourth quarter, the provision for credit losses normalized and our asset quality metrics improved. At December 31st, non-accruing loans were 25 basis points on total loans. Non-accruing commercial loans were zero. Past due loans were 22 basis points on total loans. There was one Cree loan passed due at December 31st, and that was broke current in January. And we had net recoveries for the quarter of $160,000. And at this point, I'll turn the call back to Ned. Thank you, Ron. And we'll now take any questions you might have.

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 or your question's already been answered, You can withdraw from the queue by pressing star followed by the number two. Our first question today comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Hey, guys. Good morning. Nice quarter. Thank you, Mark. Good morning. You bet. I guess first question, Ron, I'm curious how you're thinking about the margin. Do you feel like that sort of mid-250 level is kind of sustainable as we move into the early part of 2026?

I do, Mark, and I can give you, you know, I can give you kind of a full year outlook on the NAM. I think you're all aware of the swap termination that'll happen at the end of April. So, I'll talk about that first. So, in the second quarter, we expect the margin to increase nine basis points related to that item and another four basis points. in the third quarter. So that's a run rate benefit of 13 basis points that'll be fully baked in in the third quarter. You know, outside of that, if we talk about organic expansion, we're projecting three to four basis points per quarter. That is assuming no changes in the Fed funds rate. So that would bring our Q4 estimate to 278 to 282.

Okay, great. Secondly, I guess I know credit is really good here, but optically the reserve looks a little light relative to your peers. How do you guys think about that? And is there a conscious plan to sort of nudge that up over time with maybe qualitative factors?

Yeah, Bill, do you want to jump in on that?

Sure. Mark, We, as you know, follow the CECL guidelines, which essentially say this is our lifetime loss estimate. And we are on the lower side of the spectrum with our peers, although not unduly so. We run the numbers, we look at our history, and we're very comfortable that it's adequate for our portfolio. And so I think you can expect, it may tick up a few bips, tick down a few bips here or there, but we're comfortable in that. James Meeker- You know mid 70 coverage range just based on our portfolio and the last estimates for it, but it obviously is something we spend a lot of time on, and you know will tend will be more conservative on the call side when when it's merited.

James Meeker- Okay, and then.

James Meeker- i'm sorry but.

I'm sorry, Mark. I would just make one other point. I mean, we still have a relatively large residential portfolio, and so the reserve allocation on that is less than commercial, right? And, you know, we'd like to see our residentials come down, to be honest, but that does have an impact on the weighted average reserve coverage.

Okay, great. And then, Ned, in your opening comments, you made You made a point that you think there's going to be some wealth management opportunities. Should we take that to mean you're looking at potential M&A in the wealth side, or is that more sort of organic hiring and that sort of thing?

Actually, Mark, I was referring specifically to the institutional banking team, which serves in large part the not-for-profit sector, higher-end not-for-profit sector. So that was really focused on endowments and retirement funds.

funds that might come with that with growth in that portfolio gotcha thank you yep thanks mark thank you our next question comes from damon dalmonte with kbw please go ahead hey morning guys hope you're uh all doing well today um just wanted to start off with kind of a

Dan Mansoor- morning I just want to kind of start off with the outlook on expenses, you know kind of good control going in here to year end you know kind of ron's wondering what your thoughts are on and kind of the full year outlook and maybe any variability from a quarter to quarter perspective.

Dan Mansoor- yeah so damn I guess i'll break it salaries and benefits versus you know all other. Dan Mansoor- In Q1 you know we're looking at. a six percent increase in expenses which fact factors in you know annual merit raises which you know come into play at the beginning of the year biker resets and those types of things but we've also you know made this investment in the institutional team that's coming on board we also have you know i think as everyone probably has increased medical insurance those types of things so that's what we're kind of seeing for q1 uh on the salaries and benefits line um all other Expenses, we're looking at year over year, like 5% increase. And we also have the branch coming online, so that's going to add to both our salary run rate as well as our expense run rate. Call it a total of $600,000 over the course of the year, starting in late summer, early fall.

Got it. Okay. Okay, great. Um, and then kind of, you know, can you, can you just give a little update on kind of your outlook with the, with loan growth? Um, you know, are you optimistic that we can start to get back to that low mid single digit range, kind of given what you're seeing and as well as, you know, the recent, uh, hires to the commercial lending team, I guess. Yeah. Just some color on the outlook for loan growth would be great. Thank you. Yeah.

Yeah. I, I listen, I net loan growth wasn't, uh, where we wanted it to be, you know, kind of closing up the year. But we, you know, we're expecting, you know, 4 to 5% growth in Cree, which would be kind of standard. The CNI team, we think, will grow at a rate faster than that. So I'm not going to put a target on that. They're just getting situated. And then, you know, we expect residential to be a net runoff like it was this year. So I would say all in, you know, we're looking at, you know, I would say a very solid 5%. year over year, which is an improvement over where we've been in 2025. And we'll leave it at that. But we do have a lot of confidence in this team that we've just brought in, but we'll set the target there for now.

Yeah, and Damon, I would just add a little more color. I mean, we had $180 million of credit formation in the quarter. We just had a lot of payoffs. And the payoffs were some expected, some earlier than expected. And you saw that we got a pretty sizable prepayment penalty on one of them. But we don't expect that level of early prepayment to continue. But the new team has been with us for nine days. We don't, we don't, uh, w w we haven't seen pipeline growth yet. I think we'll be much better positioned next quarter to, to, to, uh, to share our expectations. We have, we have, um, great expectations. They're a very seasoned team. That's been in the market for a long time. They look at a lot of, a lot of potential deal flow, um, as they have for, for years and years. And so we have, we have, uh, we have high hopes and great expectations, all all in the CNI space, which we've been talking about for a while, figuring out strategically how to kind of change the balance sheet around and grow the CNI side a little faster. The growth that Ron talked about on the Cree side is a little bit due to the continued concentration level. And so we're being careful on that front and really want to focus on helping this team be successful on the CNI front.

Got it. Great. I appreciate you taking my questions. Thank you. Thanks, Damon.

Thank you. Our next question today comes from Laurie Hunsicker with Seaport Research Partners. Your line's open. Please go ahead.

Yeah. Hi. Good morning.

Good morning, Laurie.

Just to circle back to the CNI group, can you share with us how many people are there and how much they did last year collectively?

I don't have details on what they did last year collectively, but there are four people in the team that came over. We will add a treasury management specialist to that team because of their tendency to deliver deposits. You know, they've, they've had a, the leader of the group, uh, has 30 plus years in this, in this space in the Northeast region. Um, very, very well known. And, and, uh, you know, they've, they've been highly successful at prior prior institutions. So, um, uh, yeah, we, we're very confident Lori, uh, and, and we'll, again, I think they've been here nine days. Let's, let's take a little time to, to, to build the pipeline up, but, uh, We'll report in detail, I think, probably as soon as next quarter.

OK. And where did they come from?

They were most recently at Brookline.

Gotcha. OK. Gotcha. So then is that focus basically in the Greater Boston MSA? yeah i'm sorry lori ask that one more time yeah so the loan focus is that going to be in the in the greater boston msa uh northeast region so so broader than broad broader than just the boston msa gotcha okay and then um going to expenses ron the the one quarter the one quarter increase um sorry the the six percent increase Lisa Smith – For one quarter off for quarter that's obviously netting out the terrible foundation charge. Lisa Smith – Is that correct, are you thinking about yeah. Lisa Smith – From the $8 million. Lisa Smith – Okay Okay, and then, how should we think about the terrible foundation charge in 26 thank you previously guided to 500,000 but. Lisa Smith – To be thinking that again.

John Potter, yeah we penciled in 750 for the end of the year.

Okay, great. And then I guess branching. Obviously, we've got Pawtucket coming. Is there anything else you're thinking about? Or should we be thinking about kind of maybe one branch in 27 as well? How do you think about that?

Yeah, so for 26, Pawtucket's it. But Michelle, Kyle are Brett KenCairn, head of retail banking has developed a plan that we're that we're reviewing as part of our strategic outlook that that may not be full service branches, it might be alternative delivery. Brett KenCairn, You know atms. Brett KenCairn, And the like that that she's developing a sort of full sketch on so so not nothing else on the docket in 2026 but I, but I think it's safe to say that we will continue to invest in our. retail footprint in the outer years. You know, Laurie, we've done one or two branches a year for the last five years. I think that order of magnitude is probably reasonable going forward. The form of it might be a little different.

Okay. Okay. That's great. And obviously credit. You're probably one of the few banks in the entire country with zero CRI non-performers, zero C&I non-performers, and booking recoveries. But just a very quick question, the $6 million of office classified, any color on that and when does that mature?

Yeah, Bill, you want to take that one?

Sure. Sure. That matures in 2031. So plenty of room there. Extremely strong, dedicated sponsors. Occupancy right now is in the mid 40%, but growing, so the building's getting close to break even. I think it's just going to be a long, slow nursing process, but the sponsors are fully committed, and they are building it up slowly. So we feel comfortable about it. That's why it's accruing, and by the way, it's completely current. So we think we're going to nurse our way through on this one.

Great. Great. Well, congratulations on credit. Really, really great. Okay. So putting it all together, your earnings power, obviously very, very strong. In 3Q, you had dialed back comments around buybacks and we're seeing buybacks ramp up across the board. As we're looking here, your CET1, almost 12%, your risk base, 13%. I mean, why wouldn't you revisit buybacks here? How do you think about that?

TAB, Mark McIntyre, yeah where I think it's our kind of our standard answer that we take it under consideration, all the time and taking into account, you know. TAB, Mark McIntyre, You know other ways that we think that we need to deploy capital so not not saying that we're going to do more and not not saying that we won't but we'll just. TAB, Mark McIntyre, we'll just have to take that as it comes.

TAB, Okay, and it just remind me what's existing in your current authorization.

I don't have that information off the top, Lori. I have to look that up.

Okay, great. Hey, thanks so much. Great job on this quarter.

Okay, thanks, Lori.

Thank you. And our next question comes from Ross Haberman with RLH Investments. Please go ahead.

Good morning, gentlemen. Most of my questions have been answered. Thank you. Could you just talk about your wealth management and what you're doing to basically expand that a little faster in 26? Thank you.

Thank you, Ross. Good morning. So, yeah, we've added some business development officers. We are hopeful, although I think we need a little more than nine days' time to pass, but we're hopeful that this team that is focused mostly on the nonprofit sector, um, will, will help us, uh, with, with, uh, you know, the various things that will come out of that client base, which is generally higher ed healthcare, um, uh, and, and, and, uh, you know, private schools, uh, that, that sort of thing that tend to have endowments and, and, and retirement plans. So, so we're hopeful there, um, MNA, uh, you know, we're happy with, with, uh, the lighthouse deal that we did, um, in 2025, that's a part of the ongoing strategy. It's probably not the primary focus. And, you know, prices are high. And so we have to be careful about price and culture and fit. And again, we're happy with what we bought in 2025. And so we're, you know, we're not aggressively looking for opportunities but we're opportunistic and and we'll we'll uh keep our eyes open on the m a front and in that case it would be relatively you know smaller uh tuck-in uh transactions uh that again that that fit with our style of uh how we how we go to market and and uh and and how we run the group well so one of those

So I was just going to say we've also added- What's your average return on assets?

On the- Wealth. On wealth?

On wealth, yeah, yeah, sorry. Your fee structure, sorry, your average fees, is it somewhere between a half and 100 basis points?

Yeah, I would say all in on average. It's about, I think, 60 basis points. Yeah.

Got it. I'm sorry, I cut you guys off, but you were going to say something. I apologize.

No, no. You got the 60 base points, right?

Yes, I did.

Okay. I was just going to say that we've also added some A person in the financial planning side of things. So we think that's a great retention tool. We think it's a great way to appeal to sort of next gen and full families. And so we're We continue to invest in that side of the business.

Thank you very much.

Thanks, Ross. And Laurie, just to follow up on your question, we had 850 authorized and we've got 582,000 shares remaining.

Thank you. And just a final reminder, please press star 1 if you'd like to ask a question today. We have nothing else on the line, so I'll pass you back over to Ned for any closing comments.

Thank you, Livia, and thank you all. As we move into the new year, we remain committed to delivering value as a full-service community bank and long-term financial partner to our customers with a disciplined focus on long-term performance. So really appreciate your time today and your interest and support, and we look forward to speaking to you all again soon. Have a great day, everybody.

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